IndiGo Airlines – Ready for takeoff!

How does IndiGo tie in “low cost does not mean cheap” and “on time is a wonderful thing” to financial success – the mantra that allows them to fly high!


IndiGo airlines started as a low cost aircraft carrier in the Indian domestic aviation space. IndiGo has a stated three-point corporate mantra as its business model: “Offer fares that are always low, flights that are on time, and a courteous, hassle-free travel experience.” Given this model, some context for the Indian airline industry is provided below:

Citing one of the leading Indian dailies, circa 20121 (edits are made in Italics to provide relevant details):

“It’s been 51 days (at the time of going to press) of the Air India (India’s national commercial aircraft carrier) pilots’ strike. As of February 2012, Kingfisher Airlines has grounded 30 flights and cancelled nearly 50 per cent of its scheduled departures. The aviation industry is facing a loss of around Rs.7,700 crore (USD 1.5 Billion) in the year ending March, as per the consulting firm Centre for Asia Pacific Aviation (CAPA). The industry, which flies five million people a month today, is expected to grow 7.5 times by 2020. And in India, as elsewhere, aviation is a multiplayer industry (6 major commercial operators to be precise). Right now, though, there is just one player who is scoring all the goals; the only airline making profits even as competitors flounder with frozen accounts, grounded planes, and massive losses. That player is IndiGo.”

Circa Dec 2014, citing another online news agency2:

“India’s fiercely competitive aviation industry has almost claimed a second victim in three years. SpiceJet, (a low cost carrier and) India’s third largest airline operator, has flown into rough weather and informed India’s aviation regulator about its inability to continue operations without the government’s financial support. If the airline goes down, it will be the second big casualty in three years after Kingfisher Airlines—once India’s second biggest airline—went belly up in 2012…. “


Given the above context, it seems impressive that IndiGo was set up only in early 2006 as a low cost carrier. “Low cost does not mean low quality,” is something Aditya Ghosh, President, IndiGo, had been heard saying repeatedly. IndiGo in fact has been one of the fewer airlines to have had a successful operating model and financial numbers to justify the model. There have been other “low cost carrier” models in the past which have either been acquired or been dissolved due to huge operating losses. IndiGo on the other hand successfully filed for an IPO7 in October 2015, with its shares being oversubscribed 6x. When it filed for an IPO, IndiGo enjoyed the majority of the market share in the domestic commercial aviation industry in India (See Exhibit 1).


                                            Exhibit 1: Market share of domestic airline companies in India, as of October 2015


What has made IndiGo so successful – a question on the lips of everyone who has been following this market and been predicting its doomsday since the last 5 years.

IndiGo’s operating model ties into its low-cost carrier model since inception, with just a single aircraft type (Airbus A320), no frills, high aircraft utilization and low rein-over costs (lowest in India and also among the lowest in the world). What do these terms mean and how do fit in with the operating model and result in a successful business model:

  • Single aircraft type – IndiGo started in 2006 with 97 Airbus A320s. A single-model fleet helped it operate with fewer specialised engineers and maintenance staff. This improved their bid towards standardization and increased labour utilization.
    • “Network Effects” – The most important and advantageous features of the journey of IndiGo so far has been that the company could place a massive $11 billion order for ~100 aircraft even in 2005. For any other airlines it would have been impossible, especially with a promoter’s capital of just $82 million. But industry experts say that it was the goodwill of the co-founder Rakesh Gangwal who was a veteran in the industry and knew Airbus management when he was associated with the likes of US Airways, Air France and United Airlines3.
    • “Economies of scale” – Placing bulk orders also implies a huge potential for discounts. In August 2014, IndiGo placed a bulk order for another 250 Airbus A320s, with the completion of the order expected by 2023.
    • “Maintenance cost” – The airline has kept its maintenance cost low at just 3% compared with 8-12% at its peers. Its maintenance costs are lower than its rivals. IndiGo’s maintenance costs per ASKM (available seat km), or what it costs an airline to fly a seat for a kilometer, is 0.11 rupee as against Etihad Airways-backed Jet Airways’ 0.74 rupee. IndiGo has an adroit leaseback program, maintains only one kind of aircraft (single-aisle Airbus planes) and does not run an aircraft beyond six years.
  • Route Planning and Aircraft utilization:
    • “Destination planning”: IndiGo operates over a lesser number of destinations than its competitors but with a higher frequency – with a fleet of 78 planes for 36 destinations while Spice Jet (its nearest low cost carrier competitor) flies to 46 destinations with 58 planes (See Exhibit 2).
    • “Air time”: The network maps show that all IndiGo’s destinations are connected to at least two cities while most are connected to 3 or more destinations. This means IndiGo can keep its aircraft in the air for a longer period of time and save up on airport charges.
    • “Utilization rate”: Because of this IndiGo has a high aircraft utilization rate of more than 11.5 hours per day per plane compared to industry average of 8-10 hours per day6. However, this kind of efficiency has come with a fair amount of risk that the company has undertaken. IndiGo operates a point-to-point route network with no interlining or code-sharing with other airlines for passenger traffic, which helps reduce turnaround time. This also implies that any delay in IndiGo’s flights could affect its passengers who can’t board any other flight since there’s no code-sharing or trade agreements with other airlines. But it saves the company from sharing the inefficiencies of other airlines, especially delayed flights.
    • “Non-seasonal traffic ports”: From Exhibit 2, it is observed that Spice Jet destinations also seem to be well connected, but they have a larger presence in Tier 2 and Tier 3 cities (especially in the south) and traffic to and from these cities tends to be seasonal.
    • “Stage length”: Defined as flying time per flight – this is typically 1.5 hours, which ensures not having to stock and serve hot meals in flights – ties in to their no frills model and improves turnaround time.
    • “Full yet spacious”: Optimal use of space (150 seats to the 190 that a full-fare airline carries) ensures that the airlines are running full practically 90% of the time.
    • “Turnaround time”: IndiGo has worked the industry’s best turn-round time (time between landing and the next take off) for its flights. While others take between 35 and 50 minutes for turning their flights around, IndiGo achieves that in 25-30 minutes. This has helped the company achieve an aircraft utilisation time of 11.5 hours per day. This is also in part due to the standard set of aircrafts in use – crew gets optimized.

SpiceJet routes

Indigo routes







Exhibit 2: Schematic of IndiGo’s flying routes (in blue) vs SpiceJet


  • Lease agreements – IndiGo has the youngest fleet of aircrafts, with an average age of 3.26 years compared to the industry average which is greater than six years.
    • “Leasebacks”: The company goes for six-year sale and leaseback agreements for its planes. After that, the lessor takes back the planes, freeing up the airline to induct a brand new aircraft at an additional cost. This model is starkly different from the maximum use policy of other airlines.
    • IndiGo claims that this strategy has let it avoid ‘D’5 checks, where it has to be taken off services for 60 days for major repairs.
  • No frills model – Paid-for on-board meals, a single flying class.
    • “Business class-Not!”: IndiGo’s “business class” seats are essentially the front row of seats which tend to have more leg space than their preceding “economy class” seats.
    • “Who needs lounges?”: They also don’t need to maintain expensive lounges at airports further reducing costs.
  • Fuel Costs – Fuels for Indian airlines accounts for about 45% of total operating costs due to high domestic fuel taxes and excise duty.
    • “Software”: IndiGo’s aircraft try to save fuel by using software to optimize flight planning for minimum fuel burning routes and altitudes and also by making use of latest fuel saving technology.
    • “Load reduction”: Fuel burning is also reduced by not providing not carrying heavy cutlery or equipment, which fits into their no frills model – not serving hot meals on board.
    • “Engine optimization”: IndiGo was also among the first airlines to have the aircraft taxi to the terminal with one engine, shutting down the second engine to save fuel.

Needless to say, some of the above features in IndiGo’s operating model have allowed it to maintain a competitive advantage over its competitors in pricing as well. In India, where airlines compete with the much cheaper options of rail and road travel, it is usually the time advantage that attracts passengers to planes; a four-hour delay for a 55 minute flight can be disastrous. IndiGo has carved out a reputation for flawless “On Time Performance”, ensuring customer retention and an average on-time record of an amazing 90 per cent1 (see Exhibit 3) This has resulted in IndiGo consistently carrying the maximum number of air passengers in India month on month despite not having any frequent flier program (see Exhibit 4).



                                                   Exhibit 3: On Time performance of Indian domestic airlines as of June 2015.


                                                            Exhibit 4: % of air traffic in terms of passengers carried in 2014.

In the words of IndiGo’s ad agency, “People shouldn’t feel cheap when they buy cheap.”8

Thus with its relatively lower costs in most segments due to its operating model, IndiGo has managed to create and capture value successfully since its launch in 2006. It has pioneered business concepts which were hitherto alien in the low cost carrier segment in the Indian domestic aviation industry. IndiGo has recently started international operations and it would be interesting to see if this operating and business model and their alignment are successful on their international routes as well. Literally, sky’s the limit!





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Student comments on IndiGo Airlines – Ready for takeoff!

  1. Nice article. This concept seems similar to RyanAir in Europe and Southwest in the United States. I wonder how the trend to low-cost carriers over the past 10 years will continue to evolve in an industry known for consolidation. Will some of these carriers merge with each other or be acquired by higher-cost carriers, which may erode at their operating efficiency?

    1. Thanks Pedro for reading and your comment. The only difference in RyanAir is that they charge extra for specific bag sizes and make it a totally painful process of getting the passengers to print their ticket, ensure bag size is just correct etc. whereas IndiGo has been fairly consumer friendly, Southwest even more friendlier I think based on my limited experience in flying them in USA. I’ve a feeling that they may continue to operate as a niche rather than consolidation because these low cost airlines are profitable – something which the industry isn’t. Or maybe that depends on the geographies where they operate (I don’t have data on RyanAir, Easyjet and Southwest to comment if it’ll even make sense for them to agree to a consolidation deal with bigger airlines.)

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