How Rahul Bhatia Built InterGlobe And Its Airline IndiGo

into A Class Act

In early October Inter Globe Enterprises, a $2.6 billion (revenues) travel and hospitality group,
best known for its efficient budget airline IndiGo, will have completed 25 years. No huge
celebrations are in store to mark the milestone. Group managing director Rahul Bhatia will
address an all-staff meeting broadcast from InterGlobe's headquarters in Gurgaon, near Delhi,
then it will be business as usual. "Why spend all that money?" shrugs Bhatia.

Fanatical cost-consciousness has lifted IndiGo, a rank newcomer eight years ago, to the top of
India's airline market. As per August data tracked by India's airline regulator, the privately held
carrier that has carried 84 million passengers to date has a third of all domestic passengers
(Bhatia and dad Kapil Bhatia, InterGlobe's executive chairman, own 51%). Media
baron Kalanithi Maran's SpiceJet, lately a discount warrior, is a distant No. 2 with close to one-
fifth share. Airline tycoon Naresh Goyal's 21-year-old Jet Airways, co-owned by Etihad
Airways, trails in the third spot.

While SpiceJet and Jet have been racking up losses, IndiGo makes money and has been doing so
since 2009. In the fiscal year to March 2013, the latest for which official numbers are available,
it reported net profits of $130 million on revenues of $1.6 billion. Though airlines in India were
battered last year by the rising cost of aviation fuel and the weaker rupee, IndiGo is believed to
have stayed on course with net earnings in the year to March 2014 estimated at $100 million.

"IndiGo has completely changed the concept of what a budget airline should be. Low cost need
not mean low quality. I'm a huge fan," says Deep Kalra, founder of online travel agency
MakeMyTrip.com, which is a big seller of IndiGo tickets.

IndiGo's formula is to offer economy-plus service at economy rates and on-time performance
that's the envy of rivals. This fetish for punctuality has made it, despite its single-class offering,
the airline of choice for the business crowd. "Being on time is a wonderful thing. In my
experience IndiGo has been late only once--for ten minutes," says Manmohan Tiwana, founder
of Wodehouse Capital Advisory, a Mumbai family office advisory firm, who travels on business
every week and ditched Jet for IndiGo five years ago.

Tiwana appreciates the "squeaky cleanliness" of IndiGo's planes (average age: under 3 years)
and is happy to cooperate with the onboard crew as they collect all the trash from passengers
before the aircraft lands. A note in the onboard magazine asks passengers to pull the window
shades down and rearrange their seat belts to the original position before leaving the plane. These
small touches help the airline achieve quick turnarounds of less than 30 minutes between flights.

"Operating a budget airline successfully is all about execution. IndiGo has delivered on that
count flight after flight, day in and day out," says Kapil Kaul, who heads the South Asian arm of
airline consultancy Centre for Aviation.
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That record is a feat in India, where the state-controlled aviation infrastructure has notoriously
lagged rising air travel. While the situation has eased somewhat with the government handing
over the running and rebuilding of key airports to private companies, capacity constraints are yet
to be overcome. For example, Mumbai airport has two runways, and when one is shut down for
maintenance, flight delays are inevitable. Lufthansa and Emirates are currently battling over time
slots for the sole parking bay available in Mumbai for their A380 jets.

"I often marvel at what we achieve despite all odds. But we want to deliver the India experience
differently," explains Bhatia over lunch at L'Angoor, one of four restaurants that this avowed
foodie owns. For him there's no fussing over a menu or even much of a walk. The restaurant,
whose name is a pun on the Hindi words for grape (angoor) and an Asian breed of monkey
(langur), is in the same building as IndiGo's office.

While I sample a chilled melon soup--it's a hot and muggy day in Gurgaon--Bhatia restricts
himself to a bowl of lentils. He's just returned from a five-week stay at an ayurvedic clinic in
south India 22 pounds lighter, sporting a beard and a cropped haircut.

The airline business doesn't lack tycoons who are flamboyant and outspoken, but Bhatia, who
prefers casual shirts to business suits, has an understated approach and shies away from the
spotlight. Flying below the radar and avoiding external distractions to keep focused on business
is his mantra, he explains. Father Kapil, who still comes into the office, is equally low profile.

That will probably have to change as the Bhatias, who have kept all their businesses private so
far, are reportedly preparing to list IndiGo next year and subject themselves to more public
scrutiny. Valuations for the airline range from $1.5 billion to $3 billion though Bhatia won't
speak to those estimates. Nor will he confirm that an IPO is imminent, despite the market buzz,
except for saying, "There's no urgency as we've tied up financing for our current needs."

Recently, IndiGo secured a $2.6 billion loan from the Industrial & Commercial Bank of
China for 30 planes. IndiGo needs to quickly augment its all-Airbus fleet of 81 aircraft as the
final deliveries of the 100 planes it ordered in 2005, before it started operations, will finish in
November.

IndiGo is the launch customer of Airbus' fuel-efficient A320neo, having placed an eye-popping
$16 billion order for 180 planes in 2011, but deliveries of the Neo will begin only by the end of
2015, confirms Kiran Rao, executive vice president of strategy and marketing for Airbus. There
is speculation that an aircraft deal is imminent.

Meantime, competition is heating up. The Tata Group's budget airline with AirAsia's Tony
Fernandes has taken off, albeit with only one plane. Tata has a second venture with Singapore
Airlines for a full-service carrier called Vistara. The government has approved a handful of other
entrants as well. Bhatia says the arrival of the new airlines will push the industry deeper into the
red. As per CAPA estimates, the combined losses of the Indian industry were $1.8 billion in the
sluggish fiscal year to March 2014.

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Jitendra Bhargava, a former director of state-owned Air India and author of The Descent of Air
India , agrees that those losses could mount, even in a brisker economy. "New airlines will
compete aggressively with legacy carriers that are weighed down by debt and accumulated
losses," he maintains.

An industry group lobbied Delhi not to grant AirAsia permission to fly and also took the matter
to court. That prompted Fernandes to lash out in a tweet that "Whatever IndiGo tries to do to stop
us, it just makes us smarter and stronger." Bhatia insists he's not afraid of AirAsia, and his
objection is grounded in current rules permitting foreign investment in existing airlines, not new
ones.

I ask Bhatia what he makes of mutterings by rivals that IndiGo's profits are a mirage having to
do with the lucrative sale-and-leaseback agreements for its planes, which are estimated to net $5
million for each plane. Bhatia counters that if sale-and-leaseback were such a sure-shot formula
then every airline in the world would be profitable: "That's a loose statement for the birds. Our
profits are real."

So far IndiGo has stayed financially aloft, Bhatia insists, by "keeping costs structurally low." For
example, the airline stocks no hot food on board and has no loyalty program (only adds to costs,
he insists). Every expense has to be justified: Will it bring more customers? Says Bhatia: "We
keep asking ourselves: What other cost can we remove without losing a single customer? This is
our religion, and it serves us well."

Travel wasn't Bhatia's first career choice. His father was in the trade with Delhi Express, an
airline agency he cofounded with nine partners in 1964. More than two decades later the partners
fell out, and he started over with the equivalent of $37,000 as seed capital. Bhatia, who had
completed his electrical engineering degree from the University of Waterloo in Canada, came
back to India in 1984 with a plan to set up a telecom venture with Nortel to make digital
telephone exchanges.

But that went nowhere as the government of the time didn't favor foreign technology. He was
drawn to a teaching career but had to reconsider when Dad, then ailing, enlisted his help. "I
wasn't really prepared to carry the baton. It was an emotional decision," he recalls. In 1988 he
joined the family business, naming it InterGlobe.

The early days were rough--"We had a cash crunch every two weeks"--but the young Bhatia
sought new opportunities. In 1994 InterGlobe snatched the franchise for what is now Galileo
International, an airline reservation system once owned by United Airlines, which InterGlobe
went on to represent in India. In 1999 they formed a joint venture with Galileo to provide back-
office services. That venture is now a separate unit called InterGlobe Technologies with 6,000
people and overseas offices in China, the Philippines, Singapore, Dubai, the U.S. and the U.K.

These businesses and a growing friendship with Rakesh Gangwal, a seasoned airline executive
who worked at United before he went on to head US Airways, prepared the ground for Bhatia's
next leap. Old associates say Bhatia often spoke of his dream of starting an airline that he wanted
to name IndiGo. But he waited until Gangwal agreed to partner with him.

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"Rakesh was hesitant because of the high mortality rate in the business. But I'm a persistent guy,"
says Bhatia, who credits Gangwal equally for IndiGo's success. (U.S.-based Gangwal, who owns
an estimated 48% of the airline and is more reclusive than Bhatia, declined to comment for this
story.)

IndiGo got its airline license in 2004 but didn't take off until 2006. "People said we were crazy
not to launch with old, leased planes. But we didn't want to cut any corners on quality," recalls
Aditya Ghosh, IndiGo's president.

Bhatia picked Ghosh, then 33, to run IndiGo after Bruce Ashby, the airline's first chief executive,
left in 2008 and went on to head airline travel alliance OneWorld. A trained lawyer, Ghosh had
no aviation experience though he had worked as InterGlobe's general counsel. He admits that it
was a trial by fire but today, "I've got two owners who let me do my job."

Ghosh emphasizes that having crews with the right attitude, in all areas of operation, has been
crucial to IndiGo's success. He personally interviews new hires, including drivers and mechanics.
"I try to judge if there's a desire to chase the dream. People can't get motivated by a manual."

Budget-conscious travelers used to cheap seats and shoddy service by India's no-frills carriers
started flocking to IndiGo as word got around. Saroj Datta, a former director at Jet Airways,
recalls that as the entrenched market leader, Jet didn't take the upstart seriously. "But in six
months it became evident that we were losing traffic to IndiGo." In response Jet lowered prices,
then focused on its budget offerings, Jetlite and JetKonnect. Jet is now retracing its full-service
roots.

IndiGo has had its own air pockets to navigate along the way. Bhatia highlights a bout it had
with the government in 2012, when approval to bring in new planes was suddenly withdrawn.
Bhatia had to lobby hard to get the decision reversed. With a full fleet and the grounding of
Kingfisher Airlines owned by liquor tycoon Vijay Mallya, IndiGo soon flew past rivals to claim
the top spot.

While IndiGo covers some close foreign destinations, it hasn't succumbed to the lure of long
haul--that will involve a new type of aircraft--so it remains largely a domestic carrier. "It might
be sexy to see the IndiGo tail in Los Angeles, but we're doing well right here," maintains Bhatia,
who sees the bigger challenge in delivering superior service even as the airline expands.

India is back on an upswing, but other dips can be expected. Bhatia believes that an "economy
plus" business targeting its rising middle class can survive the cycles. "When people start
tightening their belts, you benefit." He's replicated the IndiGo model in hotels in a joint venture
with Accor. InterGlobe Hotels Chief Executive J.B. Singh says that Bhatia won't let him cut
quality corners, and the fittings and furniture are all imported. There are currently ten Ibis hotels
across the country with nine more to be added by 2017.

India's airlines carried 60 million domestic passengers in 2013, and that could triple in the next
decade. Consultant Kaul says that with new rivals now in the fray, "IndiGo needs to shake the

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tree and figure out a new strategy." Bhatia disagrees: "If you keep driving costs down and
improving efficiency, the runway is long."

How Rahul Bhatia Found IndiGo Gold

Rahul Bhatia and his IndiGo Airlines like to keep a low profile, yet other domestic airlines in
India look at them with deep mistrust. Some of it has to do with what happened in mid-August
last year, when Bhatia broke ranks with the rest. All the private airlines had decided to take on
the government on high fuel taxes with a decision to stop flying for a day, and a threat of an
indefinite suspension if demands were not met. Full service airline chiefs Naresh Goyal and
Vijay Mallya led the move, saying that the airline business was becoming unviable in India.

Less than 24 hours after the stormy meeting, IndiGo backed out and started accepting bookings
for the day of the strike. SpiceJet followed a day later, and the others were left with little option.
The strike fizzled out and taxes remain unchanged. A year later, it's clear why IndiGo was
reluctant to ground its fleet.

In August 2009, while the other airlines were bleeding from mile-high debts and declining
number of passengers, IndiGo was making money. Its results for 2009- 2010, posted with the
Directorate General of Civil Aviation (DGCA) and audited by KPMG, show a profit before tax
of Rs. 550 crore on a turnover of Rs. 2,664 crore. For comparison, Jet Airways and Kingfisher,
the two biggest private airlines, turned up a combined loss of Rs. 2,114 crore in the same period.
Of those in the group that day, SpiceJet was the only carrier that ended the year in the black, with
a profit of Rs. 61 crore.

IndiGo, an unlisted company, is on course to raise about Rs. 2,500 crore in the next six months,
most likely through an IPO. However, the competition is treating the results with much
scepticism. They point out that net profit margins are rarely above 4% for the best of airlines
around the world. Numbers, they say, can be distorted by one-time incomes such as sale and
lease back. IndiGo did two such deals in the period. "The results are to be taken with a big pinch
of salt," says the head of one rival carrier who would not go on record for obvious reasons.

Whether rivals believe the numbers or not, the newest of six airlines in the Indian skies is
showing signs of breaking away from the pack. IndiGo had a shade over 16% of the market at
the end of August, and is now within striking distance of Air-India domestic that has 18% of the
market. It is also easily the most meticulous of the domestic airlines in terms of fleet and network
planning with aircraft induction plans already in place for the next decade.

Consider this: Over the next five years, 70 more Airbus A320 planes, which were ordered before
the airline even began its first flight, will join its fleet. For beyond that (2015-2025), IndiGo has
government permission to induct 150 planes.

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Airline fleet planning is typically done a decade ahead, but not many start-up carriers have the
vision or resources to do it. Senior sources in the DGCA say Indi- Go is gearing up to roll out
international operations by this time next year. It is, in fact, poised to become a point-to-point
operator connecting multiple destinations in Asia-Pacific and the Middle East by the time the
new batch of 150 enters service. "If not for the government rule restricting airlines that are less
than five years old from flying overseas, 6E [the IndiGo callsign], would already be doing it," he
said.

Over the next six months, IndiGo's fleet will go up to 35 planes. The increased capacity will
almost certainly catapult it to the third position, behind Jet Airways (27% market share) and
Kingfisher (20%). But that is neither here nor there. Built as they are on a low fare-high load
factor model, low-cost carriers (LCCs) do not find it too difficult to rapidly grab a chunk of any
market. Capt. Gopinath's Air Deccan opened new stations and grew rapidly, managing to
overtake Indian Airlines for a brief period. But Deccan's eventual inability to survive proved that
a huge network and large number of passengers do not necessarily mean profits. Deccan
connected 74 cities with 43 planes, while IndiGo is at 22 cities with 28 planes.

Two Men and an LCC

At its simplest, IndiGo is a story of how two extremely low-profile men, sitting 7,000 miles
apart, are building an airline with a cost structure and profit margins that few have achieved. The
two, Rahul Bhatia and Rakesh Gangwal, own 50% each of InterGlobe Aviation, the company
that runs IndiGo.

As managing director of InterGlobe Enterprises, a $2 billion (revenue) group, with subsidiaries

in the hotel, airline and travel technology business, Bhatia is the one in charge of operations. He
has used almost two decades of experience of the travel business as well as, some say, his
contacts in the government, to set up and run IndiGo.

The Kolkata-born Gangwal, an engineer from IIT Kanpur, had a long career in aviation with Air
France, United Airlines and as President and CEO of U.S. Airways . They met almost
accidentally in the corridors of the United Airlines headquarters in Chicago in 1985, while
Bhatia was doing IT work for the airline. The acquaintance grew into a friendship over the next
decade and a half, before the airline was planned and launched.

In the U.S., Gangwal is remembered for bailing out of U.S. Airways in 2002 with retirement
benefits of $15 million, leaving the airline deep in the red in the aftermath of September 11. To
be fair to him, old timers in the U.S. airline industry say the airline had problems that preceded
him and continued well after his departure. He left to join the private equity business and is
currently advisor at Teachers' Private Capital, which has a portfolio of $10 billion. Gangwal did
not speak with Forbes India for this story.

Bharat Bhise, CEO and founder of Bravia Capital, a New York-based transportation advisory
and investment company, has worked with Gangwal. "Gangwal brings in the global networking
and the expertise that comes from running global airlines. He has made the mistakes and knows

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how to avoid them," he says. Bravia's affiliate company, Hong Kong Aviation capital (HKAC),
has 10 aircraft on lease to IndiGo.

"The idea for us was to set up a certain kind of an airline… the kind that is ontime, clean and
delivery is well executed," Bhatia recalls. "This is our DNA and we intend to hang on to it. It has
worked for us, and we have no desire to change, even when we have 100 more planes," he says.

For the roughly 30,000 passengers it carries daily, the focus on basics, like a fresh clean product
and high on-time performance, defines IndiGo.

Not every rival is sceptical of everything IndiGo does. The higher aircraft utilisation (an average
of 11.5 hours per plane everyday) and quicker turnaround time (about 30 minutes) has impressed
industry veterans like Saroj Datta, executive director of Jet Airways. "The LCC concept became
acceptable because of the better service. Competition was much stiffer for IndiGo when it
launched compared to when Jet started," he says.

In fact, Kingfisher and Jet were forced to start their own LCC operations in response to Indigo's
success.

Low Costs: Myth or Reality?

There is more to the IndiGo story than clean planes and its most recent distraction, air-hostesses
wearing bobbed wigs and blue hats. The airline is on its way to demolish some myths about the
Indian airline industry. The most common of these is that you can't make money in the airline
business. High taxes on fuel, absence of cheaper secondary airports and crowded metro-airports
make profits impossible. Both LCCs that made profits last fiscal (IndiGo and Spice- Jet) have
proved this wrong.

For the three largest airlines, Air-India, Jet Airways and Kingfisher, that have posted the highest
losses, it is not operating costs but the high interest costs arising from the huge debt acquired
over the last few years that has proved to be a killer.

So can an airline without these problems, with minimal debt on its books and a level-headed
induction of capacity make it work? Of course, says Bhatia, who has bet the farm on more
Indians flying every year. "The key to growing the market is to continue to attract more
passengers with lowest fares. It is our religion to be the cheapest," he says. Though many
passengers say IndiGo is not cheap enough, Bhatia disagrees. He says that at an average of Rs.
3,000, IndiGo's fares are among the cheapest.

What about the operating costs? Legacy carriers say with similar planes and labour costs, the
costs cannot be very different for anyone. But a look at what happened in July this year,
illustrates how costs can vary significantly for airlines. Kingfisher Airlines, which operates A320
aircraft, was forced to ground nine of its planes because of engines overheating. International
Aero Engine's (IAE)V2500-A5 engines power the planes. The problem was unique to the Indian
skies, though the engine is used all over the world. It was traced to the high chlorine content

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around the Indian airports that corroded the silver nuts in the high pressure drums. Kingfisher
had no option but to pull out the planes from service for repairs. Though there is no official
confirmation of this, media reports say that the airline has sought compensation of Rs. 1,000
crore for losses due to the engine troubles.

IndiGo too operates A320s with the same engines in the same conditions and has had to deal
with similar problems. Yet, it hasn't taken a hit on its books. This is because of a full-suite
‘Power by the hour' contract with IAE that put the onus of performance delivery on the
manufacturer. IndiGo has similar agreements with the airframe maker (Airbus), as well as for the
vendors for other critical components. "The agreement is like an insurance. It is not that they had
anticipated the engine problems when they signed it four years ago. They were simply providing
for any such problem," says an official from the engine company who did not want to go on
record.

Kingfisher sources say they too had an engine maintenance agreement, but it was without (the
more expensive) full guarantees. Though more expensive, fixing reliability of aircraft is essential
for an LCC operation because success depends on how the airline can milk the flying machines.
Airline sources say the airplane usage is likely to go up further when IndiGo starts international
services. "Many of the seven to eight hour operations in the subcontinent and neighbourhood will
surely be at night, when the aircraft are not being used," they said.

Not a Dollar More

Bhatia explains his basic philosophy on costs as "thinking before spending a single dollar, ‘Do I
need to spend it? Can I get away without it?'".

One visible difference between IndiGo and other airlines including Spice- Jet, which operates in
the same space, is the very low marketing and advertising spend. Bhatia is a firm believer in the
word of mouth and IndiGo has a much lower visibility than other airlines. "How many
passengers come in after seeing a hoarding? It is not about putting your name on the tail," he
says. The airline did start a campaign earlier this year after a spat with SpiceJet on on-time
performance claims.

Not everyone agrees with this philosophy. Kapil Kaul, India head of CAPA (Center for Asia-
Pacific Aviation) who has been studying the growth of LCCs very closely, thinks IndiGo is
underinvested in branding. However, Kaul is full of praise for the way Bhatia and Gangwal have
put in the systems and people and supported their business in the tough times. "Indi- Go's 100
airplane deal itself was the game changer," he says. They had a great deal and suppliers credits
that allowed them to operate with very low capital, till revenues slowly grew to present levels.

To structure the lease and financing structures, Bhatia hired CFO Riyaz Peermohammed, an old
Emirates hand who handled treasury and corporate finance at his earlier job. IndiGo has six-year
sale and lease back agreements for most of its planes. The leaser takes the planes back after this
and the airline can induct a brand new one in its place. Though at a cost, this is effectively like a
perpetual elixir of youth. The most important financial implication is that it never has to

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undertake the ‘D' check, where the aircraft is completely stripped down and airlines often
discover the need to spend on major repairs. This check is usually done when the plane is about
eight years old.

On daily operations, IndiGo's operations head, Capt. Saleem Zaheer, runs a tight ship. Flight
performance is monitored through devices like the digital flight data recorder, which some
airlines use only for compliance with the regulators. IndiGo was among the first airlines to have
the aircraft taxi to the terminal with one engine, shutting down the second engine to save fuel.
Another example is of pilots flying at higher speeds (and burning more fuel) to reach Mumbai
quickly, only to spend the next half-hour circling the airport. This was curtailed and fuel burn
reduced.

Airline costs are measured in terms of CASK or cost per available seat kilometre, designed to
give an idea of how much it costs the airline to fly each seat (which may or may not have a
passenger in it) for a kilometre. IndiGo, which claims to be the lowest in the industry, declined to
reveal its CASK numbers. In a report, Citibank's airline industry analysts Jamshed Dadabhoy and
Arvind Sharma say the capital costs per passenger for full service airlines have jumped several
fold over the last few years, while those of budget airlines have remained stable or moved up
very little. SpiceJet for instance has a CASK of between Rs. 2.30 to Rs. 2.40 while the number
for Jet Airways is around Rs. 3.60.

For LCCs, cost can be cut everywhere, and they may well be indirect ways. While taking
delivery of a new plane, Airbus customers in India, including Air India and Kingfisher, send
their pilots, crew and engineers to Toulouse to the plant. But Indi- Go prefers to have the planes
delivered in Delhi. "This comes at a marginally higher cost, the advantage is that two sets of
pilots and crew are not out of the system for the 10-15 days," says an airline official.

Scaling Up

"The real test for IndiGo starts now," says Nawal Taneja, professor and chairman, department of
aviation at Ohio State University. SpiceJet has a very similar model and is now much better
capitalised than before after Kalanithi Maran's entry. The kind of margins that IndiGo has shown
will be very tough to sustain, he says. He also points out that there is little to differentiate
between the two Indian LCCs--both operate highdensity seating and have similar network
strategies. The models are very close to that of Southwest airlines in the U.S., which has a single
aircraft type and a network that is a combination of two-three city hubs and many focus cities,
with lots of flights but little connecting traffic between them and a very simple fare structure.
IndiGo's latest profits seem abnormally high relative to its revenue, he says.

Commenting on the low-cost model globally, Taneja says many of the older operators like
Southwest and RyanAir are reaching saturation. By comparison, the industry is still very nascent
in India, where hardly 5% of the population uses air transport. While conceptually the market is
huge, infrastructure is the big limiting factor.

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On the network, IndiGo is sticking to routes with an average stage length of 1 hour, 30 minutes.
It has daily flights on all its routes, and is the largest operator on a third of these routes. It aligns
flight timings to match connections from Mumbai and Delhi. It has no loyalty programs, yet half
of those flying are repeat customers. It is looking to increase connections to cities like Patna and
Dibrugarh, where prosperity is growing.

Scalability for IndiGo is unlikely to be a problem, says Kiran Rao, Airbus vice president, sales
and marketing. The airline has been able to plan its operations to the last detail over the past four
years, he says. Days before an aircraft is delivered they are well-planned about where to operate
it and usually have begun selling tickets. Other Asian airlines such as AirAsia have proved that it
is possible to grow and keep your margins high.

Rahul Bhatia: Cheap Seats and Profits

HE IS IndiGo Airline's promoter

TRAJECTORY SO FAR : A surprise entrant into the low cost carrier business (in 2006),
IndiGo is now India's largest LCC, a profit-making one at that

NEXT STOP: Develop a chain of three-star hotels. "The future is in this market and all the
figures point to it," says Bhatia

Every travel agent dreams of starting an airline, says Rajji Rai, President of the Travel Agents
Association of India, India's leading travel agents body. "Only two who started in the travel
agency business, Rahul Bhatia and Naresh Goyal, have actually succeeded," he adds.

Even if Goyal's star has lost some of its twinkle in recent years, Bhatia's seems to be on the
ascendant. His airline IndiGo is now the most profitable in the country.

Not much was known about its profitability, as the company is not obliged to make its numbers
known. Civil aviation minister Praful Patel revealed some of the financials this November in a
reply to a parliamentary question. Low cost carrier (LCC) IndiGo and the much smaller regional
carrier Paramount were the only two airlines in India that had made a profit in 2008-2009.
IndiGo made Rs. 82 crore, while Paramount notched up Rs. 7 crore.

Running an airline today is more excruciating than getting a root canal without anesthesia.
Bhatia stands among the few who are not flinching. Rai, whose office at Connaught Place in
New Delhi was right next to Bhatia's in the early days, counts himself among Bhatia's friends
from that time. "He has done astronomically well," says Rai.

In a business meant for the big boys Bhatia has surprised everyone. Though the last of the
networked carriers to take off in 2006, IndiGo is now India's largest LCC. Its offering focussed

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on a fresh-clean product, a decent on-time performance and fabulous sandwiches, has attracted a
faithful following. Now nobody knows how this has happened and Bhatia isn't helping. He says
he doesn't think that way. Probe harder and all you get is: "Honesty of purpose which comes
from my parents, luck and destiny." Bhatia is very reticent and this allows him to move
unnoticed and surprise people.

At the Paris air show in the summer of 2005, all manner of aircraft from the mammoth A380 to
the Su 27 were showing off in the air. A line-up of sheikhs, ministers and generals were signing
millions of dollars worth of deals amidst champagne and handshakes. Showmanship was the
leitmotif as airlines and vendors pulled out all PR stops to outdo each other. An unexpected
development that created ripples that year, was a $6 billion order for 100 planes by an Indian
travel technology firm called InterGlobe Enterprises. The order was for its airline venture called
IndiGo that had not even been launched. Everyone scrambled to find who was taking such a big
bet.

They needn't have bothered. The InterGlobe promoter and managing director Rahul Bhatia, had
given the event a miss.

Actually, Interglobe's forerunner Delhi Express, a small airline representation firm is a good
place to start with to understand Bhatia. Kapil Bhatia, Rahul's father, started Delhi Express with
a partner. It was a well-run airline representation firm, but remained small. After Rahul Bhatia
returned from Canada with a degree in electrical engineering from the University of Ontario and
a two-year stint with IBM, he decided to scale up operations and started InterGlobe Enterprises.
He recognized the huge opportunities opening up beyond the traditional general sales agent
(GSA) business of selling tickets.

Over the next 15 years, he displayed an astute sense in picking the best partnerships with
companies from around the world and brought them into his Indian ventures. In most cases the
partners have invested in the business with him. On the technology side, he first tied up with
New York-based Cendant for a stake in InterGlobe Technologies. In the airline business, he
roped in former U.S. Airways CEO Rakesh Gangwal as a partner. The hotel business is a joint
venture with French hospitality group Accor and for the business jet venture he picked American
corporate jet maker Hawker-Beechcraft.

Bhatia scripted each move through the dint of hard work, turning into a road-warrior, putting in
18-hour days and hitting the road sometimes for more than 15 days a month. Rai remembers
pinning down Bhatia for meetings at Brusells airport on one occasion and London Heathrow on
another, as he flew in and out of the cities. He was rarely in office, but had acquired the
reputation of a crack negotiator, jet-setting all over the world to sew up the best deals.

"He inherited the goodwill of his dad's business and built on it successfully", says Seema Luthra,
who was president and chief executive officer of Galileo and worked with Bhatia for two
decades. She quit InterGlobe two years ago to start her own entrepreneurial venture. Bhatia also
showed that he could take the longview needed to build an organization.

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In 2001, Luthra was heading sales and marketing for United Airlines on behalf of Interglobe Air
Transport (IGAT), an offshoring company that catered to large international airlines from India.
After 9/11, United Airlines, one of the largest clients of InterGlobe announced it was stopping
flights to India on security concerns. This dealt the Indian company a body blow. Massive
investments had been made for the United Airlines operations in India and business was roaring.
When overnight revenues started dropping, there was tremendous insecurity among employees,
recalls Luthra.

"Rahul invited me home for dinner to thank the team for the efforts and to reassure everyone that
they will be protected. Despite a very difficult period financially, he never let go of a single
employee," she says.

During leadership meetings, he often spoke of the number of families that depend on InterGlobe
and how decisions need to be taken keeping them in mind. "In my 20 years," she says, "I do not
recall a single year, including the bad years, that the employees were not paid their annual
bonus."

He is also a very patient man. He always wanted to start an airline but waited for pioneers like
Air Deccan and Jet Airways to develop the market. He also waited for Rakesh Gangwal, who
after a successful career with United, U.S. Airways, Air France and Worldspan, advises the
private equity arm of a $100 billion Canadian pension fund. Much before IndiGo was launched,
he had told friends, if he were ever to get into the business, it would be with Gangwal. The
reason could be that Gangwal has an enviable global network and counts people like the Airbus
CEO John Leahy among his closest friends.

Bhatia did the hard yards to earn Gangwal's trust. He first represented the United Airlines when
Gangwal was a senior official there. Later, he catered to United's needs by operating as a BPO.
His efforts paid off when Gangwal invested in Bhatia's IndiGo. "This is one excellent example of
how Rahul is able to build on relationships," says a former senior manager at InterGlobe.

And he went about building IndiGo methodically. Pramod Sahni, director CRM Global, who
worked for Bhatia for close to 20 years, has many stories to tell about Bhatia's search for the
right talent. "While building Indigo, he would insist on interviewing candidates at every level.
From check-in counter people, to crew, sales and marketing staff, they were all hired only after
Rahul had met them." Sahni remembers flying with him to three cities in a day to meet
candidates. On one such day we flew from Delhi to Hyderabad to Chennai to Mumbai,
interviewing people everywhere, he says. A sad fallout of all the travel for Bhatia is a back
problem that troubles him now.

The positive from those days of endless travel is that he is a bit of an expert on food. "Name any
city in the world and he will tell you the best places to eat and even offer to make you a
reservation," says Sahni, who has dined with Bhatia at restaurants around the world. Bhatia, with
his gourmet friends, owns two award-winning restaurants -- China Club in Gurgaon and
Piccadeli in New Delhi. "The fact that IndiGo serves the best sandwiches in the sky does not
come as a surprise to me," says Luthra.

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And now his love of food is being extended to the hospitality business. This is through a 60-40
hotel joint venture with the French hotel group Accor, to develop a chain of three star hotels
under the Ibis brand. The second of 14 such hotels has just opened up in Pune. "The future is in
this market and all the figures point to it," says Bhatia.

But for the moment, the mountains of Whistler in British Columbia, Canada, his favorite holiday
destination, beckon and heis heading there for a winter break.

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