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CASE STUDY

IndiGo Airlines
(Indian Aviation Industry)

Overview of Aviation Industry in India (Current)


The Indian civil aviation industry is on a high growth trajectory. India has a
vision of becoming the third largest aviation market by 2020 and is
expected to be the largest by 2030.
The civil aviation industry in India has ushered in a new era of expansion
driven by factors such as low-cost carriers (LCC), modern airports, foreign
direct investments (FDI) in domestic airlines, cutting edge information
technology (IT) interventions and a growing emphasis on regional
connectivity. In terms of market size, the Indian civil aviation industry is
amongst the top 10 in the world with a size of around US$ 16 billion.
Indias scheduled airlines carried 67.73 million passengers in 2014
compared with 61.42 million passengers in 2013, and 58.81 million in
2012, according to the DGCA. Air traffic in India grew between 20 and 40
per cent for six years starting 2003. Aircraft movements, passengers and
freight at all Indian airports are expected to grow at a rate of 4.2 per cent,
5.3 per cent and 5 per cent, respectively, for the next five years,
according to estimates by Airports Authority of India.
There is large untapped potential for growth in the Indian aviation industry
due to the fact that access to aviation is still a dream for nearly 99.5 per
cent of its large population, nearly 40 per cent of which is the upwardly
mobile middle class. It is critical for the industry stakeholders to engage
and collaborate with the policy makers to come up with efficient and
rational decisions that will shape the future of the Indian civil aviation
industry. With the right policies and a relentless focus on quality, cost and
passenger interest, India would be well placed to achieve its vision of
becoming the third largest aviation market by 2020 and the largest by
2030.

HISTORY (of IndiGo Airlines)

IndiGo was set up in early 2006 by Rakesh Gangwal and Rahul Bhatia, of
Inter Globe Enterprises. Inter Globe holds 51.12% stake in IndiGo and 48%
is held by Caelum Investments, a Virginia, US based firm, run by Rakesh
Gangwal.
IndiGo placed a firm order of 100 Airbus A320-200 aircraft during June
2005 in plans to commence operations in mid-2006. Former US Airways
Executive vice-President and Marketing and Planning Bruce Ashby joined
IndiGo as its Chief Executive Officer. The airline already acquired parking
lots for its brand new aircraft at both Mumbai and Delhi airports. By the
time they announced the first flight, they had already scheduled their first
20 aircraft.
IndiGo took delivery of its first Airbus A320-200 aircraft on 28 July 2006,
nearly one year after placing the order, and commenced operations on 4
August 2006 with a service from New Delhi to Imphal via Guwahati. By the
end of 2006, the airline had six aircraft. Nine more aircraft were acquired
in 2007 taking the total to 15. By December 2010, IndiGo
replaced the state run flag carrier Air India as the top third airline in India.
It

already

had

17.3%

of

the

market

share,

behind Kingfisher

Airlines and Jet Airways.


Following Indian regulations, in January 2011 IndiGo received its license to
operate international flights upon completing five years of operations.
IndiGo's first international service was launched between New Delhi
and Dubai on

September

2011. Over

the

following

weeks,

the

international services were expanded to serve Bangkok, Singapore,


Muscat and Kathmandu from New Delhi and Mumbai.
By early 2012, IndiGo had taken the delivery of its 50 th aircraft in less than
6 years. IndiGo is known to have placed the largest order in commercial
aviation history during 2011, when Airbus won the US$ 15 billion deal for
180 aircraft. This deal pushed up the percentage of Airbus aircraft in India
to 73%. Currently, IndiGo airlines operate 79 aircrafts and have orders for
186 planes, and plans to place orders for 250 more aircrafts.

OBJECTIVE
To understand how IndiGo airlines managed/s to give profits for many
consequent years, when other Indian airlines (especially Kingfisher
Airlines) were in red (showing big loses) and to give Indigo airlines
suggestion/s on how to keep their profits up (future) in line with their
current strategy.

RESEARCH FINDINGS/OUTCOMES
IndiGo airlines have managed to break even 2 years from its operations
start day, after which it has given/giving profits in subsequent years.
Other Indian airlines have been racking up losses, while IndiGo airlines are
posting profits since 2009. In March 2013, it reported net profits of $130
million on revenue of $1.6 billion. All this at a time when crude oil price
were increasing rapidly, keeping operations cost low was almost
impossible, recession was knocking at the door and there wasnt a
majority

government

at

the

centre.

In

addition,

there

were/are

infrastructure bottlenecks, price wars among carriers, imbalance between


supply and demand for aircrafts in India and lack of differentiation among
domestic carriers in India. IndiGo airlines holds around 38% of airlines
market share India (in terms of traffic), which is at least 12% more than
the nearest competitor. It plans to use IPO in the coming quarter as
leverage to compete against the foreign airlines entry into Indian market.
It had 76.9% seat occupancy in April (highest). It operates 590 flights daily
(majorly domestic, international flights give only 15% of its total revenues
- 2014). Operational reliability was at 99.5% in FY15, which signifies
relatively very little maintenance trouble with its fleet. IndiGo airlines have
lowest CASK (cost per available seat Kilometre) excluding fuel cost of 2.82
cents among Indian carriers. It is the only airlines in India which have
turned in profit consistently for 7 years in a row till FY15.

(2012)

HOW? (Did IndiGo Airlines Manage?)


Single Class: They only have economy class. So, they dont need to
spend time, money and crew on privileged passengers.
Single type of Aircraft: They use/order same type of aircraft. So, they
can spend less (time and money) on training crew (pilots,
attendants, engineers etc.) with greater flexibility and they can
maintain spares at a lower cost than airlines having multi varieties
of aircrafts.
Fuel: They use advanced software to optimize flight planning for
minimum fuel burning routes and altitudes. In addition, they hedge
fuel to save cost and plan for future. Recently, they placed orders
for Airbus

A320neo

which

claims

to

deliver

15%

less

fuel

consumption than Airbuss earlier models.


Low Fleet Age: They manage an average fleet age of around 3
years. Thereby reducing maintenance and operation costs.
Route Planning: They usually fly busy routes. They give better
connectivity (2 to 3 cities) than most of the other airlines. Thus, can
maintain higher average aircraft utilization rate (around 11.5 hours
per day) and can save on airport charges.
Low turnaround time: They manage to get aircraft back in the air in
less than 35 minutes. Thus, they can adjust more flights per day and
have to pay less to airport authorities.
Purchase and Lease Back: They

place

order

on

aircraft

manufacturers in bulk thereby in position of negotiating for large

discounts and other services. In addition, it reaps profits by its lease


back policy of aircrafts.
Vendor Management: They have pay by hour contract/agreement
signed with their vendors (parts and equipment). Thus, they dont
have to maintain a very large inventory and they dont have to
bother about their aircraft being grounded due to non-availability of
spares.
They ask for delivery from aircraft manufacturers to Delhi airport
than sending their engineers and pilots to the hangers in country
where aircraft is being manufactured and parked (better utilization
of crew).
They maintain a low aircraft to employee ratio compared to other
airlines.
Majority of their flights have low time in air. Thus, they dont have to
stock and serve hot meals.
Spends comparatively less on marketing. Relies on word of mouth to
create its reputation and maintain it.
Young, energetic and motivated (CEO personally interviews for the
new recruits) team. Freedom of choosing method of getting things
done given to the CEO by the owners.

WHY? (Couldnt other Airlines [especially Kingfisher]


manage the profit?)
High number of aircraft to employees ratio.
Low aircraft utilization.
Very high salaries (& incentives) to crew members, engineers and
ground staff.
No stable investor, one who would stay invested for long time.

Spend a lot of money on useless galas, parties and festivities.


Had extreme loyalty programme.
Tried to cover or connect too many cities in India (Tier 2 and 3).
Multiple varieties of aircrafts.
Not very serious about punctuality of take-off and landing time.
Try to cover many international locations.

Tried to give world class cabins, lounges and in aircraft services (IFE
system on each seat and hot meals).
Made too many changes in their business models and strategies
which led to their weakness (wanted to expand and make profits too
fast) as, they couldnt stabilize.
Merged with loss making airlines.

Never had professional airline management in place (had no CEO


from 2006 to 2010).

WHAT? (IndiGo Airlines can do to remain profitable in


future?)
Get maximum benefits out of the IPO release, which will help it with
fresh funds to maximize its purchasing and investing power.
Tap the untapped domestic cargo market.

Bring up some kind of schemes which will prevent customers from


choosing other airlines. As, these days all airlines have almost
similar air tickets prices.
Bring up some kind of schemes to keep customers (make them loyal
to your brand). Example could be of free baggage allowance till 30
Kgs for customers who have travelled 2 to more than 2 times using
Indigo Airlines in last 7 months (First come first serve basis -10
people per flight each day). Such, kind of schemes will not hurt the
profits (much) of airlines. Instead will get customers to use the
airlines more often than other airlines.
Connect (focus more) on middle class and salaried Indians. As, there
number is on rise.
Send business development representatives to major companies in
India. Asking the companies to fly with Indigo Airlines.
Ask pilots, cabin crew, engineers and ground staff which have been
trained by Indigo Airlines (which have successfully passed the tests)
to sign a contract/bond for 5 years and renew (option) the same

when return of investment got. Prevents other airlines from


poaching.
Invest a part of profits in R&D (both technological and managerial).

Construct an image of Indigo Airlines in such a manner that it is


perceived as the preferred airlines of all Indians and Indian Travel
(like Air Asia in Malaysia).
Keep a part of profits aside, which can be utilised to compensate
families or people injured (generously) in which Indigo Airlines is
involved. It would help in keeping a good image of the airlines (if
accident harmed it).
Use a trial method to open up small booths (with one operator and
one computer with internet connection) across various small cities in
India, which will help people from various sections of society to book
air tickets fast, easily and without paying extra to travel agent.
If IndiGo airlines plan to step up in the international aviation sector
it should do under a different brand name (different entity). Doing so
will prevent it from depleting IndiGo airlines profit and its image. In
addition, it can use trial and error method on the new brand at a
small level (meaning with few aircrafts and frequency) before going
all out. Building a name in international market will require lot of
funds, will require lot of legal processes/paper work and will require
much more employees.
Plan much in advance to take the most out of economies of scale
and changing economy of India and world.
Plan (safety) in detail to prevent any mishap related to IndiGo
Airlines. As, one mishap can tarnish the image terribly (example
Malaysian Airlines).
Dont try to expand by merging with other airlines. Maintain your
identity.
Invest in other profitable business to reap the benefits from them.

Can invest in customer care which calls customer to remind him/her


one day in advance about his/her flight details and which can
remind customer to leave his/her residence (location) on the day of

flight based on his/her current position (which can be known in


advance a day earlier).
Do anything/everything to prevent getting entangled in bureaucracy
in India.

*Note: Did not have access to Indigo Airlines or Inter Globes financial
statements instead got the data through reference sites. Do not know the
exact figures of loan taken by the following enterprises and their financial
sources.

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