Here’s how IndiGo grew bigger and bigger while everyone else fizzled out

Shivam Vahia
Nov 5 · 10 min read

Legacies, practically non-existent labour reforms, dynamic laws and ever-changing political landscape have regrettably contributed to making India a brutal market for every entrepreneur such that even the aviation sector is not spared. If you’re looking for stability, Indian aviation is the last place to invest in today.

In the last decade, big names like Kingfisher and Jet Airways have gone kaput. Both were backed by prominent powerhouses, Vijay Mallya and Naresh Goyal, respectively. Yet when the time came, both crash-landed, a fall which was spectacular in its own devious way. Further, SpiceJet was on the verge of facing a similar fate but recovered in the nick of time. One simply cannot ignore India’s flag carrier Air India, which presently is in debts worth thousands of crores, forcing the government to desperately seek buyers.

Similarly, we have seen the rise and fall of numerous entrepreneurs and business houses that have tried to induct themselves into the Indian aviation space. This raises a question as to what is so different about India? It is imperative to note that the Indian market is exceedingly price sensitive in which the airline charging the least wins. And, one is left wondering how do you apply this formula in a highly taxed industry whose liabilities mostly comprise of fuel bills and debts taken to repay these expenses.

But, one can always resort to IndiGo for its secret to success. IndiGo, a 13-year old airline is the poster child of Indian aviation today. It has grabbed approximately 49 percent of the market share and expanded from one aircraft in 2006 to almost 250 in 2019, which is not a small feat. One may argue that exponential expansions aren’t new for the 21st century and even start-ups like WeWork did that. However, unlike modern-day start-ups, IndiGo isn’t leaking funds or relying on a cash-rich investor. The airline today has Rs 18,736 crore in cash, a perfectly controllable debt and dreams that touch the exosphere. Hence, it’s important to understand that when every other player was falling like a domino, how did IndiGo manage to pull this off? Let us have a look at the history of this airline.

PROMOTER-DUO:

The story starts in 2006 when Jet Airways and Air India already dominated the skies and GoAir had started services only in the preceding year. Two determined entrepreneurs, Rahul Bhatia and Rakesh Gangwal teamed up to start an airline. Bhatia’s InterGlobe Enterprises held 51.12% of InterGlobe Aviation (parent company of IndiGo) while Gangwal’s Caelum Investment held the remaining stake.

MANAGEMENT IDEOLOGY:

Since inception, IndiGo’s management had a crystal clear goal: it was here to disrupt the industry with its weapon — the low-cost model. First tried and tested in the US and Europe, the concept was fairly new to India. The number of customers using airways in India back in 2006 was minimal due to its high charges and IndiGo realized this untapped customer base it had in a booming economy. Even though AirAsia’s tagline is “Now everyone can fly”, IndiGo has actually made it possible for every Indian to fly. Piggy-backing on the low-cost model and by concentrating on service delivery and on-time performance, it slowly started expanding its network. Six A320–200 were delivered to IndiGo in 2006 and another seven followed in 2007. Though, the young company had already kept an order of 100 A320–200 even before they started flying operations as the goal was to expand and establish properties of scale. This was a calculated risk that fortunately worked out perfectly for IndiGo.

NEW HORIZONS:

By the end of 2010, IndiGo surpassed Air India to become the third-largest carrier in India with 17.3% passenger market share, trailing behind only Jet Airways and Kingfisher. With all major airports of India covered, it was time to penetrate deep into the tier 2 and 3 cities of India. Consecutively, they soon received approval from the ministry to fly international and their first Delhi — Dubai flight took off in 2011. With domestic routes in place and commencement of international routes, IndiGo was then fighting a two-front war. International operations from India under a low-cost model was untested and the airline had to ensure connections to important destinations, all while ensuring maximum load. At the same time, it placed orders for 150 A320neo and 30 A320–200, valued at US$ 15.6 billion back then. In 2012, it took delivery of its 50th aircraft. Within six years, the airline had acquired a sizeable fleet and was now the largest airline in the country, according to the statistics of passengers flown. In fact, crude oil was at an all-time high back then, and yet IndiGo was the only airline to post a profit in FY13.

FURTHER ACQUISITIONS:

IndiGo continued taking delivery of a new aircraft every month and added new destinations. Full-service carriers depend on a hub-and-spoke network to establish connecting flights and codeshare agreements. IndiGo, on the other hand, was using multiple cities as a hub and adding point-to-point flights as well. Which made one thing sure that this company was coming for everything. 2015 was a crucial year for IndiGo as it ordered more 250 A320neo’s, valued at US$ 26.5 billion and had an IPO that raised US$ 460 million. Since then, it has consistently expanded its reach all across the Indian sub-continent. Last year, it upgraded the order of 125 A320neo’s to A321neo, a larger narrow-body plane that can accommodate more passengers. This aircraft is also expected to fulfil their long-haul dreams of flying to far-flung destinations like Istanbul and London. A further push was given to regional routes by acquiring smaller turbo-prop like the ATR72–600.

But, the prime question still remains. How did IndiGo manage to expand and be profitable at the same time?

1. Stable Top-Management: Much of the credit goes to the top management of the company. Even though the two promoters are having a boardroom tussle at the moment, their combo has managed to grow IndiGo to what it is today. Their business strategies imply that duo was confident about their investment right from the beginning and came with razor-sharp focus.

Adding to this, Aditya Ghosh was the president and whole-time director for more than a decade. A long-term team means everyone shares common goals and work-flow is smooth and experienced. In fact, the first CEO of IndiGo, Bruce Ashby, was in India for more than a year before operations started.

Other airlines like Jet Airways have a long history of rapidly changing top management. With short stints, none of them was able to root out problems and save the company’s future. Lastly, since the executives and investors always were on the same page, less time was spent on internal politics and full attention was given to the company.

2. Strategy: Coming to strategy, the airline has been shrewd. Initially, it targeted the tier 1 and tier 2 cities only and first established and stabilised itself. Once it had all major routes covered, the network planning team started exploring untapped sectors or the ones, which have low competition.

In the aviation circle, IndiGo is known for its ruthless networking mirroring strategy. Using this concept, the airline basically starts operating on routes where only a few airlines or flights are functioning. Using its massive fleet, it deploys more flights to control the fare and slowly bleed out the competition. It either forces the competitor to quit the route or lower down on supply. Ameya Joshi has perfectly explained this strategy in his article here.

3. Sale and Leaseback model: The airline also aced the Sale and Leaseback model to reduce aircraft acquisition costs. The model is one where an operator purchases aircraft, sells them to leasing companies and leases them back for operations as manufacturers typically sell aircraft to them at a lower cost compared to leasing companies.

In IndiGo’s case, timing was an icing on the cake. Back in 2005, Boeing had a stronghold over the Indian market thanks to orders from Jet Airways as well as Air India. Airbus offered IndiGo a competitive rate for the first order of 100 A320–200s to go up against Boeing. Back then, it was the single largest order in the world. Later when IndiGo started taking delivery of the planes, it could command a significant premium over the price it paid while executing sale and lease-back agreements with lessors.

IndiGo also ensures it has a young fleet and depends on large orders to reduce overall cost of acquiring new aircraft. An aged fleet means older engines that consume more fuel, and since fuel costs are a major chunk of expense, any saving is always appreciated. The average age of the fleet is just 5.7 years and they phase out first-hand planes that are older than six years. Adding to this, the Neo series is extremely fuel-efficient and has proven to be a boon to keep expenses under control.

4. Cost-Effective: IndiGo always stuck to the low-cost model and never ventured beyond the safe practices like testing a hybrid cabin or flying to token routes that don’t fill up seats. To be more precise, it always played by the book. All unnecessary costs were cut, including the cushion on your seats. They’re just flying you from point A to B, all other factors like comfort, ergonomics, or frequent flyer points go for a toss. And this has gone well with the passengers because majority domestic flights are usually under two to three hours.

On its international routes, the airline attracts passengers by its low fares and feeder network. Things like an in-flight meal, additional baggage, priority boarding, and seat selection are all monetized. These are called ancillary revenues and contribute massively to overall airlines revenues.

5. Efficiency: One crucial reason behind IndiGo’s profit is its efficiency. The airline has always been clear about its no-frills model and always stuck to it. Even curtains were removed from the aircraft to save operational costs.

The airline currently has 128 A320–200, 89 A320neo, 5 A321neo, and 21 ATR72–600. This fleet when scaled is extremely efficient because pilots can be easily shuffled and maintenance is quicker along with easier operational swaps. The A320 series has at least 180 seats in all planes and a few Neo’s have 186 seats. Booking, transferring, or swapping passengers across a uniform fleet is always convenient. This was the core reason why Kingfisher and Jet Airways weren’t very efficient as their mixed fleet of Airbus’ and Boeing’s were difficult to maintain.

Additionally, scale also helps reduce operational cost at every station. While the competition is able to send a handful of flights to a sector, IndiGo can deploy its massive fleet and increase supply. The ground-based costs get divided across more flights, leading to a more efficient network. Similarly, the properties of scale apply to everything, right from in-flight purchasable meals to baggage handling.

6. Scaling and other operations: The airline had included scaling as a part of its strategies since the beginning. It’s expansion wasn’t just limited to aircraft or destinations. It has been training cabin crew at in-house facilities and ensuring all personnel are up to their expectations. It has even tied up with flying schools to offer direct training for beginner pilots and get them type-rated for the A320.

In 2018, the airline had a severe shortage of pilots, thankfully the demise of Jet Airways helped them bridge the gap and expand without a speedbump. Through these in-house programs, IndiGo has ensured the airline has sufficient human resource available to fulfil its dreams.

7. Attractive Branding: Next time you fly IndiGo, check out their paper cups or packaged food products, they’ll always have something creative on them. These small touches helped the airline reach out to the common man of India who had just started flying for pleasure.

Many airlines like AirAsia now have a vibrant branding that’s meant to attract tourists and first-time flyers. Obviously, they do target the business crowd via corporate channels, but the marketing is extremely creative. This was a breath of fresh air in India because Air India’s livery had become old and tarnished. Jet Airways and Kingfisher were sold as “premium” options and other LCCs like GoAir and SpiceJet were relatively small to have a commanding position.

8. On-time Performance: While marketing and brand image was useful to attract a huge chunk of the crowd, the skies are still filled with corporates on key sectors. For them, the airline consistently delivered on-time performance, gaining itself trust from frequent flyers as well.

IndiGo’s on-time performance is questionable today, but back in 2009 it was leading the charts. Back then, the fleet was five times smaller than today, hence management was easier and external issues causing a delay were negligible.

With most aviation models failing, IndiGo comes as a breath of fresh ideas that have brought much-needed stability in the otherwise failing sector. IndiGo’s parent InterGlobe aviation is now bigger than Singapore Airlines, Alaska Air Group, and Air Canada in terms of market cap.

Ideally, in a country that depends heavily on public-sector units, IndiGo is offering a vast domestic network when compared to flag carrier Air India and even connecting new cities like Hanoi and Istanbul. For the end-user, this robust network offers easy access and convenience via multiple hubs across the country.

In light of the Jet shutdown, IndiGo is a bright star that proves the industry can sustain itself and the low-cost model is tried and tested. In recent times, Spicejet has announced it’ll phase out its hybrid cabin option and focus only on economy offerings. At the same time, Air Asia India is expected to add 17 aircraft in a short span of one year to scale its operations.

Shivam Vahia

Founder of EOTO Tech / Bylines: warpcore, CNBCTV-18, GadgetMatch, MobileGeeks, & MensXP

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