How IndiGo scaled its height
India’s civil aviation market is the ninth largest in the World & its domestic passenger traffic is growing at double digits. With about 100 operational airports, the Indian airline industry had domestic air passenger traffic of 14 crore in the Year 2019.
The growth in the industry was attributed to Low Cost Carriers (LCC). The first LCC entered services in India in 2003, with Air Deccan commencing its operations. Subsequently three more airlines – SpiceJet, GoAir and IndiGo - were pressed into services between FY06 & FY 07. The entry of LCC has changed the competitive landscape for the Indian air industry. The growth of LCCs were at the expense of Full service carriers (FSC). Competitive pricing, younger planes, wider network with higher frequencies & better punctuality led to their rise. Low price warfares between air carriers led to FSCs as Jet Airways & King fisher airlines launch their “Lite fare” models. As the operational cost of FSCs were higher in comparison with LCCs, their “Lite fares” didn’t do much magic. Slowly it led to the demise of the premier airline Kingfisher & Jet Airways halt its operations.
IndiGo was launched in market in 2006 and by this time the market was held by 3 large players: Jet Airways, Indian Airlines & Air Deccan. IndiGo moved to the pole position within 6 years of its operation in 2012 surpassing Jet Airways. IndiGo is the lone Indian carrier to show consistent profits unlike the other low cost carriers. IndiGo hold a major market share of 47.9% (as of Jan, 2020) and better balance sheet compared to any other airline. While full cost carriers were focused on customers flying experience, IndiGo kept to its low cost model & punctuality as its mantra. Here are the reasons how IndiGo scaled its height.
Bulk Ordering: IndiGo Airlines always places its order for aircrafts in bulk as it helps the LCC to strike a good bargain with the aircraft supplier. On bulk orders, airlines get discounts ranging from 20 – 60%. All the aircrafts IndiGo ordered are single aisle A320 & lately A320 neos which are more fuel efficient and meant for domestic travel. Having same fleet removes the complexity of different training for staff members & the airline need to deal only with one set of spares & engine. IndiGo initially stayed much focused on its domestic travel than the international routes, as international route means purchase of different models of aircraft.
Sale & Lease back Strategy: IndiGo airlines purchases aircrafts through a sale & leaseback arrangement. Through this arrangement airlines make good money. Airlines buy aircrafts from suppliers with an initial token money. Delivery of aircrafts typically takes few years & by the time the aircraft is delivered its market value goes up. On taking delivery the airline sells it back to lessor and use the funds to pay outstanding dues to the aircraft manufacturer. Through this transaction IndiGo makes a ransom, inaddition to the discount that it received through bulk ordering. This model helped IndiGo conserve cash and keep it books debt free.
Young Fleets & Low Maintenance: IndiGo takes aircraft leases for about 6 years. Its fleets are young & hence less aircraft maintenance is required. Young fleet means fuel efficiency is more, low maintenance costs & better passenger experience. IndiGo has the lowest maintenance cost compared to other Indian carriers that helped the airline add profits to the balance sheet.
Indigo keeps its turnaround time tight with just 31 minutes required for the aircraft to get ready for next flight. The size of the in-flight magazine in the aircraft is optimized to burn less fuel.
In an industry where competition is cut throat, IndiGo’s meticulous forward planning, cost cutting measures & professional services are key to its success.