IndiGo Airlines: On Time, Every Time

THE COMPANY

India is a hard place for airlines to make money given high costs, price sensitive customers and vicious fare wars. Kingfisher Airlines which was India’s second largest airline shut shop in 2012 owing $2.5B to stakeholders. SpiceJet temporarily suspended flights last December after it run out of cash. Jet Airways, the oldest and supposedly leading private player, has not been profitable since 2007.

With rivals in the headlines for all the wrong reasons, IndiGo Airlines has proved a bastion of efficiency and growth. Founded less than a decade ago, IndiGo is the not just the only profitable airline in India, it has been profitable since 2009! India’s biggest airline by market share, IndiGo Airlines currently carries one in three of India’s passengers.

BUSINESS MODEL

The no-frills carrier has a clear positioning – it promises to offer customers:

1. “Fares that are always low”: 
   • Budget airline positioning with consistent, low pricing but no heavy discounts.
   • No business or first class offering.
   • No lounges, food or extravagant frills in customer service.
2. “Flights that are on time”
   • The primary differentiator and branding pitch is “on time, every time”, while competitors solely advertise low fares. This makes even business travelers loyal to the brand, in spite of no ‘First Class’.
   • As per data released by Flightstats.com, IndiGo is clearly delivering on this promise to customers:

              

3.    “A courteous, hassle free travel experience”

• High level of in-flight and ground service is a key differentiator from other budget airlines.
• Youthful urban cues in branding and advertising with a ‘cool quotient and crossover appeal’.

 

 

AN ALIGNED OPERATING MODEL

The budget airline business model is hardly unique – the brilliance of Indigo lies instead in its execution. The company’s operating model directly supports and enables the three elements of the business model, ie Low Fares, Flights on Time and Hassle free experience for the customer.

It is only on the foundation of the 7 key elements of the Operating Model (as below), that the company seems to have pulled off the elusive ‘Budget with Quality’ value proposition:

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OPERATING MODEL ELEMENTS	BUSINESS MODEL ELEMENTS
1.Standardised airplane configuration: They only use Airbus A320 aircrafts, buying in orders of 100 – 200, forming some of Airbus’s largest single deals. Bulk orders ensure favorable terms. Pilots, flight crew, mechanics need to be certified for only one aircraft.	Low fares through lowered costs.   Flights on time with more                        optimized maintenance/flight crew.
2. Lease planes instead of purchase: After delivery, IndiGo immediately sells the plane to an aircraft lessor, and then leases the plane back. This allows for it to have one of the youngest fleets in the world (average 3.26 years). Keeps cash flow high and debt low. Younger fleets are more fuel efficient, need less maintenance. Lesser breakdowns/snags with younger aircrafts. Customers love newer, cleaner aircrafts.	Low fares through better                          economics and reduced fuel costs.    A hassle free experience with                     lesser breakdown/delays.
3. No non-core offerings: No loyalty programs with high operating costs. No hot meals on board. No in-flight magazines for initial years.	Low fares with low operating costs   Flights on time with lower Turn                  Around Time.
4. Fly more but on fewer destinations: It operates a lesser number of destinations but with a higher frequency – 2.2 planes/destination for IndiGo compared to 1.2 for Spice Jet. Highest plane operating time of 11.4 hours per day.	Low fares with lower fixed cost and             lower airport charges.  Flights on time with more                          controlled Turn Around Time.
5. Use of technology for increased control and efficiency: Planes equipped with the ACARS (only airline in India), that enables exact and real time monitoring by the IndiGo Operations Control Centre. First airline to use qbuster scanners for passengers traveling without check-in luggage.	Flights on time with a highly                      controlled, real-time monitoring.  A courteous, hassle free                             travel experience.
6. Focus on training and standardized process The specialised iFly Learning and Development Centre is where staff is trained, and processes are standardized and continuously improved – known to be the best in India.	Flights on time with low Turn                    Around Times  (30- 35 minutes).
7. Focus on secondary product offerings The team employs resources into the quirky cold food offerings (e.g., crowdsourced idea for a traditional bun dish), the step-free handicap accessible boarding ramps, creatively designed air sickness bags, reusable cookie tins etc.	A courteous experience with                      focus on ergonomics.

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FLYING HIGHER

IndiGo airlines posted a profit of $ 100M over revenue of $720M in the first fiscal quarter of this year. The company’s maiden IPO of ~$ 500M in October was six times oversubscribed and was India’s biggest IPO since 2012. Already on its way to prove Warren Buffet wrong about investing in airlines?

 

 

Sources

• http://money.cnn.com/2015/10/27/investing/indigo-india-airline-ipo/
• http://finance.yahoo.com/news/indigo-file-prospectus-400-million-listing-tuesday-sources-061846902–finance.html
• http://www.ft.com/cms/s/0/4c6b9aba-605b-11e5-97e9-7f0bf5e7177b.html#axzz3sp5eNZob
• http://qz.com/247458/statistically-this-is-indias-finest-airline/
• Asian Brand Strategy (book), by Martin Roll
• http://travel.cnn.com/mumbai/life/brand-story-behind-indigo-044435