See discussions, stats, and author profiles for this publication at: https://www.researchgate.

net/publication/311845105

Indigo: Securing Numero Uno Position

Conference Paper · December 2016

CITATIONS READS

0 409

1 author:

Arunaditya Sahay
Birla Institute of Management Technology
148 PUBLICATIONS   365 CITATIONS   

SEE PROFILE

Some of the authors of this publication are also working on these related projects:

Management Cases View project

Social Entrepreneurship - Producer Organisation View project

All content following this page was uploaded by Arunaditya Sahay on 23 December 2016.

The user has requested enhancement of the downloaded file.

 Indigo: Securing Numero Uno Position
Aditi Mudgal and A. Sahay

It was the fourth day of August 2016. IndiGO had completed 10 years of operatios. Aditya
Ghosh, President and whole time Director had in his Annual Report conveyed to all
stakeholders, ―I strongly believe that these accomplishments validate our passionate and
consistent focus on delivering an exceptional customer experience.‖ Prior to joining the
Company in 2008, Mr. Ghosh was the General Counsel for InterGlobe Enterprises from
2004.. His was ruminating over his journey in InterGlobe Aviation Limited where he had
taken the position in the cockpit to fly the company. Looking back, he thought, ―we started
with the objective of redefining affordable air travel in India and today we stand recognised
for delivering a high quality product that offers low fares, on-time performance, and a
courteous and hassle-free service to our
customers. We shall continue to strive harder to keep delivering on our promises.‖ He,
further, stated, ―For a company to remain profitable year after year, even in a challenging
macroenvironment,is a remarkable feat,indeed. IndiGo has accomplished this feat by
reporting its 8th consecutive year of profitability. Our full-year profit after tax for FY16 stood
at Rs 19.9 billion – the highest ever in our history‖. With the right mix of audacity and
resourcefulness, IndiGO proved that it could stand toe to toe with a much bigger competitors
and win. The thought that this winning spree should continue for ever, like cinema screen,
was moving in his mind.

Indian Aviation

Aviation Industry in India faces multiple headwinds like high oil prices, prevailing low fares,
due to competition , frequent flash sales, high crude oil prices ,high fuel taxes, rupee
devaluation. Aviation Turbine Fuel (ATF) plays a critical role in aviation industry , it makes
up of 50 percent of airlines cost structure, With aviation fuel price, which In India is 60-70%
costlier than global ATF prices (Exhibit…) , it has the capability of changing the cost
structure of airlines. Indian Oil Corporation’s aviation service refuels over 1,750 flights
everyday. making operations of airlines costlier. The Indian aviation sector is still in a
nascent stage, with the new civil aviation policy promising to further strengthen the
foundation for exceptional growth in the coming years. According to report, Indian aviation
industry is among the top 10 aviation industries of the world with an industry size of $16
billlion.

The Indian civil aviation, the industry had been shaped to a great extent by economic policies
With introduction of Open Sky Policy of 1990 ,Air India’s monopoly ended, with the entry of
private players in the market. With this opening up of aviation sector , nine private players
started operations ( http://www.slideshare.net/ShaleenSehgal/ficci-kpmg-india-aviation-
2016-report)

But unfortunately six of them -- Damania Airways, ModiLuft, East West, Span Air, Gujarat
Airways and Skyline NEPC -- downed shutters within five years of their operatins. The
difficulty of operating these airlines was, they were incurring serious financial losses, and
becoming bankrupt to further pump up operations. Indian Aviation witnessed it first ever
LCC service when Air Sahara came in the playfield by offering reduced ticket price for
customers who were willing to book tickets in advance.But its stint could not stand longer
and in 2007 under financial pressures the airline got sold off to Jet Airways.Another
interesting player was Air Deccan, launched by G R Gopinath, which offered fares on a par
with or lower than travelling in a second class air-conditioned rail coach and nearly half of
that on travelling in first-class AC.first-time flyers (half his passengers) lapped up the
opportunity , Gopinath, too, was later forced to sell his airline to Kingfisher Airlines because
of piling losses. (Mukherjee, 2014)

Newer players in 2005-06 such as IndiGo and GoAir analysed and understood Air Deccan’s
shortcomings, by tweaking the business model, these airlines improved customer services and
operations so that there were fewer delays and cancellations, bringing in the reliability
missing in low-cost carrier operations, but unlike Air Deccan , they charged a slight
premium.Today,LCCs have grown rapidly and account for two-thirds of the domestic
aviation market. Indian aviation industry, which is still an underpenetrated market, is
witnessing varied and continually evolving competition. The majority of new players in field
are, are 7 national air carriers namely IndiGO, Jet Airways ,SpiceJet and Air India, Go
Air,Vistara and Air Asia India, In addition to these there are regional carriers such as Air
Costa, Air Pegasus and Trujet to provide the much needed regional connectivity. (Indian
Aviation 016, 2016) Indian domestic traffic has increased by 20.5 % which is highest in the
world. This is a positive indicator of positive growth to being the third largest aviation market
by 2020. Jet Airways, the main competitor is the fourth largest airline in the domestic
market.Jet Airways acquired Air Sahara from the Sahara India Pariwar in April 2007 which
was renamed as JetLite. The airline started its low-fare carrier, Jet Airways Konnect in mid
2009-10 to compete with others in the segment such as Spice Jet, Indigo. Jet Airways
consolidated Jet Lite and Jet Airways Konnect under the JetKonnect brand. Jet is one of the
mature players (12 years) in the industry. Jet Airways operates flights to 21 international
destinations and 47 domestic destinations. The company has tie-up with about 150 partners
across various categories like car rental, code share, dining, e retail, hotel, lifestyle,
telecommunication, etc. It aims to offer full service across all operations wherein it will cover
the whole fleet services of JetLite, the wholly-owned subsidiary of Jet Airways, a low-cost
carrier. Jet Lite operates around 251 flights daily to 46 destinations within India.
http://www.bangaloreaviation.com/2016/02/2015-annual-review-the-best-airlines-in-
india.html (Picture India domestic air passenger traffic annual review for 2015. Total
Passengers carried)

IndiGo being the biggest domestic airline in terms of number of passengers India in 2015. It
carried 297.43 lakh passengers and commanded an overall annual market share of 36.69%.
Jet Airways group comprising of Jet Airways and JetLite (Jet still preserves the erstwhile Air
Sahara) was second largest at 182.24 lakh passengers (22.48% market share), and national
carrier Air India stood at third rank with 133.35 lakh and 16.45% market share.Spicejet’s
13.3% in November and declared its highest ever profits Image 3.GoAir continued on a
steady pace being held back by its fleet which remains at 19 aircraft. GoAir and Jet are in a
holding pattern. GoAir to assert itself in 2017 after the delivery of its ordered 72 Airbus
A320neos which isin full force. At the same time Spicejet showing that it is on the path to
recovery.

About IndiGO

IndiGO was promoted by Interglobe established in 1989. InterGlobe Enterprises,

headquartered in Gurgaon‚ Haryana state, India, providing services in aviation, hospitality
and travel, is a leader today‚. Currently InterGlobe has a network of 126 offices across 59
cities globally. InterGlobe employs more than 17,000 professionals across its businesses
which include IndiGo (InterGlobe Aviation), InterGlobe Technologies‚ InterGlobe Air
Transport‚ InterGlobe Technology Quotient‚ InterGlobe Hotels and InterGlobe Education.
InterGlobe Aviation Limited is a subsidiary of InterGlobe Enterprises Limited.

Inception of IndiGO

Indigo was established in 2006 by Rakesh Gangwal and Rahul Bhatia, the promoter
directors. Interglobe enterprises hold 51.12% stake in IndiGO whereas 48% is held by
Caleum Investments, a Virginia, US based firm run by Gangwal.

IndiGo commenced operations in August 2006 its operation.Delhi's Indira Gandhi

International Airport being its home base. The philosophy behind Indigo was to bring a low
cost carrier without a compromise on quality. The airlines continues to maintain quality, with
no- frills. IndiGO’s success in its early days was its ability to create a need of mass air travel
at pocket friendly cost without making customers wait for it. It respected the time of its
customers and never had a delay. IndiGO has unmatched industry standards with simple
things like turnaround time (The time taken for a plane to be ready for the next flight between
landing and take-off). IndiGo boasts of a turnaround time of less than 30 minutes resulting in
its aircraft spening more than eleven hours a day in the sky, compared to the industry
average of eight to ten hours. With the undeterred efforts of Indigo, it soon became clear that
it produced an experience which was one of its own kind, the prices were pocket friendly
with a decent service on board and hassle free at the time of boarding and departure. The
market which was once dominated by FSC was experiencing a shift to LCC. IndiGo's success
model largely relies on consistent low fares, regular on-time performance and minimal flight
cancellations. It uses technology smartly and is an early bird in adapting the latest ones.
Incorporating it into business to leverage and to have an edge over competitors, IndiGo
planes are equipped with a digital link system for transmission of short, simple messages
between aircraft and ground stations via radio or satellite called Aircraft Communications
Addressing and Reporting System (ACARS). Rakesh Gangwal, former CEO of US Airways
and a minority shareholder, was brought on board to garner his airline operation’s expertise.
He, not only helped in dealing with aviation norms and regulations but enhanced the image
of the company (http://businesstoday.intoday.in/story/indigo-in-most-promising-
companies/1/18666.html). IndiGo President, Aditya Ghosh, thinks (….) it is business as usual
in the red-hot market for airline services. ―We haven’t plucked the number out of thin air‖, he
says of the 280-plane fleet the airline will have by 2025. ―I know these look like large
numbers, but India is a hugely under-penetrated market. We have just one commercial
aircraft for 1.9 million people. The United States has one plane for every 50,000 people‖.

IndiGo's success over the last 10 years from its inception has been noteworthy for a company
based in a developing country. It was difficult and risky to work in a volatile market with
every kind of uncertainty howling at the door. Aditya and his team looked at everything as
an opportunity to learn, therefore, they decided to convert it as the culture of Indigo, where
every employee is working at high stakes and learning through his mistakes which make his
team empowered through their roles and clear communication through entire organization
(…..). While every competitor was struggling to compete and were on the verge of declining,
IndiGO was building the skills and infrastructure to discover the opportunity of expansion to
international routes, five years after operating on domestic routes. After penetrating the
Indian market, Indigo entered International markets ,In line with Indian regulations, in
January 2011, IndiGO received licence to operate International flights. It is the first Indian
LCC airline to operate in International markets. Indigo moved for rapid expansion to
unconventional routes as its strategy. The dreams of catching up in International market,
comes up with its own challenges and uncertainties, but IndiGO seemed to be prepared
infrastructure wise and through strengthening of its fleet size (…….). Presently, the airline
operates in 33 cities within India and 5 cities internationally with 623 daily flights. Its
international flights are to Muscat, Dubai, Kathmandu, Singapore and Bangkok from
Mumbai, New Delhi, Chennai, Hyderabad and Kochi

IPO & Thereafter

In an IPO registration statement filed in the October of 2015, the company reported overall
issue size of Rs. 3018 crore. The company’s IPO was oversubscribed by 3.73 times, the issue
price being Today, its Rs. 10 share is valued at …., the highest value achieved was
Kapil Kaul, chief executive officer (South Asia) at consulting firm Capa Centre for Aviation,
stated IndiGo’s ―IPO will help positively rerate the airline industry‖ .

Several factors underpinned the performance given by IndiGO, including the company’s
strategy, unique company culture and leadership model. In addition, Indigo pursued an
environmental sustainability strategy focused on reducing its carbon footprint and using fuel
efficient A320 neo this also cuts on fuel cost by 15 percent which comprises of 50% to the
cost structure of any airline. Since its inception, the IndiGO management team had articulated
a strategy aimed at achieving above-average industry growth. There was no ―secret sauce‖:
IndiGO’s strategy was communicated widely to shareholders and employees alike and
changed little over time.Right people, right culture: Getting and keeping the right people (and
avoiding hiring the wrong ones) was seen as key to creating the right culture and approach to
the business. Drive above-industry average growth. Several strategic elements were put in
place to target growth categories.

Sharply focus on operations, efficiency and costs. IndiGO focuses on a limited number of
markets leading to power routes and cutting down on complexities is major concern. The
airline’s strategy for global market is to steadily and slowly explore global routes that had
growth potential relative to the common travel routes of industry, which actually means
focusing on unconventional and one-stop routes and where traffic is present (demand is more
, than the supply). For example, it has a leading position in keeping flights Bangkok, Dubai,
Kathmandu, Muscat and Singapore, routes with a higher rate of growth than any other.Indigo
manages these with such a calculation.

Indigo has always been calculative and always been efficiency oriented , extending and
pushing itself to perform better on every parameter.

With 36.9% market share presently . Indigo invested heavily in purchases of A 320 Neos to
expand its fleet, relying on strong media and marketing support , multiple channel ticket
booking and undertaking incremental operational efficiency in processes to focus on
consumer needs of hassle free and on –time performance with least number of complaints and
lastly innovation and technology to tread ahead of competitors , by using code sharing ,
which facilitates on time performance and lesser time on ground , as a result cutting down on
ground costs of Airports and hangers.

Present Scenario

The post-meeting doubts on the Indigo’s dip in quarterly share prices, hinted at a less-than-
smooth start. Before this Indigo had been performing fairly well with consistently reporting
profits for last 10 years. Its share price fell to 11% the previous year. Shortly after the report
Indigo is making an attempt to work on its strategy to move forward and be careful in
uncertain times, in such a volatile industry to put out a profit warning.

However, the rocky beginning did not reflect the long-term picture. Those who held on to
their stock should have no regret, being the main concern for Indigo
 Focus mainly on domestic growth. The strategy is to operate on these non metro
(unconventional routes )connectivity routes, rather to acquiring/ expanding to other
international routes. Indigo shall increase routes and frequency in the existing regions and
expand into new regions(Indigo report). A It is operating in just 5 international routes at
present and 35 total destinations in India. Expansion to International and acquiring and
penetrating domestic routes are the two strategic directions with costs and efficiency
considered appropriately , without missing on these criterions, pursued only if these
options/targets had great strategic fit, if these options could clearly add value to the airline
and its profits, and if the financials made sense from a shareholder point of view .

Finally, the main focus is to rely on squeezing costs on an on-going basis. Top management
is sharply focused on cash management and not profit per se. ―Profit is an opinion. Cash is a
fact,‖ as Bart Becht put it.

The operations of International routes remained pretty stable over the years, with a sharp
focus on limiting the number of flights.The fundamental principle was to build genuinely
consumer –oriented airline, rather than regional/ domestic or global, brand.

While Indigo retains a consistent overall image across the globe, they allowed themselves to
express somewhat differently in each market – if and when it made sense to do so.

The market is ready to receive a fight from Indigo’s end , with a large fleet size and
operational excellence , we can expect Indigo to roll out itself as a global level LCC and give
a fight, the recent quarter results disturbs and gives a doubt, simultaneously stiff competition
from Go air , Jet Airways and SpiceJet is concern to keep an eye on , but the opportunity is
worth giving a try. Trends for Air travel show positive signs.

Airline Industry Global Scenario

Comparing the growth of Indian aviation industry, it’s been positive, but in broader scope
Indian aviation needs this level of growth to be at par with competitions like China and US
markets , which are at 12 % as compared to India’s 1.2%only.Much of the growth has been
driven by low-cost carriers (LCCs), which now control some 25 percent of the worldwide
market and which have been expanding rapidly in emerging markets; growth also came from
continued gains by carriers in developed markets, the IATA reported. The global airline
industry continues to grow rapidly but consistent and robust profitability is is not in sight.
Measured by revenue, the industry has doubled over the past decade, from US$369 billion in
2004 to a projected $746 billion in 2014, according to the International Air Transport
Association (IATA). Globally, 2000 Airlines are operating more than 23,000 aircrafts
providing service at over 3700 airports. In 2006, there were 28 million scheduled flight
departures and carried over 2 billion passengers. Growth of world air travel has averaged
approximately 5% per year over the past 30 years . Annual growth in air travel has been
about twice the annual growth in GDP and is expected to double over next 10 – 15 years. Yet
profit margins are razor thin, less than 3 percent overall. Consumer, world over, have no
brand loyality despite loyality programmes offered in the industry. This disaffection is
challenging for carriers to address because upgrading the ―hard product‖ — the aircraft — is
an expensive way for airlines to differentiate themselves, and the payback could be long in
coming. Enhancing the ―soft product‖ — through a welcoming and seamless customer
experience across all aspects of air travel, from reservation to touchdown — is cheaper, but
often more difficult to implement (Aviation Trends, 2015,
http://www.strategyand.pwc.com/perspectives/2015-aviation-trends).

To suggest that certain strategies may be better suited to determine how IndiGO’s
investments will be getting returns is unprecedented and highly uncertain. The short and
long-term future of IndiGO’s plan is still up for speculation. In the meantime, A-320 neo will
likely be turned on and the wheels will hopefully start rolling on new emerging routes, so
IndiGO’s result of doing business on new unconventional routes will be awaited to state the
success or failure of expansion to international markets. There is hope that IndiGO will be
able to weather the storm of today's economic times and challenges of volatile nature of
industry. It doesn't have to be a case of David overcoming Goliath -- but instead, of the two
of them meeting eye to eye. Yet the time had come to consider whether this growth model
needs penetration in domestic markets or expansion on international routes.

In the eyes of IndiGo’s President, Aditya Ghosh, IndiGO is staying domestic, simultaneously
capitalizing on the company’s operational strengths by offering services in International
market to test the strength of IndiGO to play in international markets. It’s not so wild a dream
to think. Aditya needs to take a critical decision on how it will be done. Not for going the fact
that it has also significantly increased the company’s risks, risks not just of embarrassment or
failure but of dangerously swift success.
http://www.icra.in/Files/ticker/Indian%20Aviation%20Industry%20(NEW).pdf
Future outlook post IPO expected shareholding pattern

Penetrating Indian markets

Global Airline Landscape

 Inclination towards expanding domestic non metro and metro routes

View publication stats