IndiGo’s ‘one-one’ model is its win-win model

In 2005, Rahul Bhatia, the managing director of InterGlobe Enterprises, created a furore at the Paris Air Show when he ordered 100 A320s. It was the biggest order from India and nobody even knew who Bhatia was. The next year, he quietly launched his budget airline IndiGo. Today, it is the largest domestic no-frills airline.
Bruce Ashby, chief executive officer of IndiGo, spoke to Praveena Sharma of DNA Money on how the airline was able to fly past established low-cost carriers despite turbulent weathers.

What were the challenges you encountered on your way to becoming the number one budget airline?
We launched our commercial operations in August 2006 and were the newest entrants into the highly competitive domestic aviation business. Since then, we have been the fastest-growing airline in India. We have not only been voted by passengers as the best low-fare airline in India but have also become the biggest low-fare airline in India, when measured by share of domestic passengers carried. The challenges we encountered on the way were the typical ones of maintaining a high-quality product and operational excellence during a period of rapid growth and intense competition.

Even when jet fuel prices were at their peak and demand was slipping, IndiGo was able to maintain a consistent load factor. How did you manage that?
We have, by no means, been immune to the high prices of jet fuel during the summer months. Higher fuel prices resulted in higher fares, and that in turn caused our load factors to slip, just as with other airlines in India and even around the world.

Have you benefited from your rival Air Deccan and SpiceJet being hit by industry conditions? How did you insulate yourself from the headwinds?
I wouldn’t say we are ‘insulated’ - it certainly doesn’t feel that way to us! All airlines are paying the higher cost of fuel.

How big are your operations today? How many flights do you operate and how many cities do you fly to?
We fly 99 daily flights to 17 destinations in India - Agartala, Ahmedabad, Bangalore, Bhubaneshwar, Chennai, Delhi, Goa, Guwahati, Hyderabad, Imphal, Jaipur, Kochi, Kolkata, Mumbai, Nagpur, Pune and Vadodara.

How different is your business model from other no-frills airlines?
That’s a pretty broad question; but a short answer is that our business model is that of a classic no-frills airline. One type of aircraft (brand new A320s), one route mission (domestic India), one class of service, strong focus on operational integrity (on time), simple processes (hassle-free), affordable fares, no frills.

This kind of focus and simplicity helps keep our costs down, and our fares low. But we spare no expense in providing the basics of comfortable, safe, hassle-free, on-time travel and that’s what helped us be voted the best, and become the largest low-fare carrier in India.

What are your expansion plans in terms of fleet and network?
We will be taking two more aircraft this calendar year, and one aircraft every two months for the next few calendar years.

Are you looking at flying international on completion of five years?
We may be interested in flying to destinations that can be served well by our current aircraft and service. However, we are not contemplating adding wide-body aircraft and flying long-haul premium-class international routes.

When IndiGo began operation in 2006, you had said that you would break even in 18-24 months - that period is over now, have you broken even yet?
We were meeting or beating our financial targets, but the recent dramatic increase in the cost of jet fuel was not envisioned in that original plan. It will depend a lot on what happens with jet fuel prices over the next few months.

Have you begun hedging your fuel risk? If yes, to what extent?
Not yet, but we are actively considering it.  Most airlines are looking to raise funds to expand operations.

Do you have any such plans?
We are more than adequately funded to suit our business plan.

How are you stimulating demand in these rough times?
We have always been very selective about offering the kinds of promotions that, in the past, were considered ‘stimulating’, such as Re 1 fares, because while these promotions certainly stimulate demand and have their place, if they go on too long or spread too far, the financial health of the airline is jeopardised. We continue to be very selective about such promotions, and instead are focused on everyday affordable fares, with on-time flights and a hassle-free travel experience. That’s a formula that keeps our customers loyal and coming back to fly with us again.

Will you continue to add capacity at the rate same as before?
Our capacity growth rate has slowed, not because we changed our plans, but because our delivery stream of aircraft from Airbus always included a slower rate of deliveries starting the second half of 2008.

How do you see the future market shaping up?
The economic health of the industry depends a lot on the price of aviation fuel, which appears to be falling these days. As for our business model, we believe it makes sense under a wide variety of fuel price scenarios. So while there is always room for improvement and innovation, we are not planning to change the basics of what we do or how we do it.
p_sharma@dnaindia.net