Alone Profit Maker among India’s Big Airlines

1. 1
IndiGoAirlines – Alone Profit Maker among India’s Big Airlines
In manycountriesaverage consumerscouldn’taffordtoflyanywhere. Butnow thanksto low Cost
carrier (LCC),everymiddle classpersoncanexperiencethe classandfacilityof travelling throughairline,
whichsavestheirconsiderable time. Aviationhasalwaysbeenathornyindustry,asone has saidonly
half injectthatmakesmillionairesoutof billionaires.AndIndianaviationhasstoodoutasnotoriously
brutal owingto hightaxesand costlyairportcharges.In spite of thisindustrybeingthorny,IndiGo,the
Low Costbudgetairline hassuccessfullysetanexcellentexampleabouthow tokeepcostlow and still
make profitsoutof it. It istheworld‘sfastestgrowinglow-costcarrierinthe world andIndia‘syoungest
airline, havingflownover21 millionpassengersinlessthanfive years.
IndiGohasbeenverysuccessfulwithitslow-fare,short-haulstrategy.The low costcarriermeansthat the
airline providesaverybasisfacilityof airtransportwithnoadd-onor luxuriousfacilities.Foreach
luxuriousfacilitypassengerare chargedextra,forexample:meal charges,lounge charges,internet
facilityetc. The airline isIndia’slargestwitha31.6% domesticshare.Indigoisexpectedtobe the only
profitable airline inFY15,accordingto a report byCentre forAsiaPacificAviation.The airlinehasmade
profitsforfive successiveyearsascomparedtotheircompetitorsJetandSpicejetwhohave lostmoney
inthese years.Indigohadstartedmakingmoneyfromitsthirdyearof operation.Indigoborrowingis
much lowerthanrivals.
Company Background
The airlinecommencedoperationsinAugust2006 witha service fromDelhi toImphal via Guwahati.
Today,IndiGoisIndia‘slargestlow-costcarrier,with3,400employees. Itsmainbase isDelhi'sIndira
GandhiInternational Airport.Thetwo,Rahul BhatiaandRakeshGangwal,own50%eachof InterGlobe
Aviation,the companythatrunsIndiGo. Rahul Bhatiawas a travel entrepreneurandRakeshGangwal
was ex-U.S.Airwayschief executive.Theybothhave increasedthe airlineshare of India'soverall
domesticairtravel marketto a third. Itssuccessstory couldmake it an attractive investment,company
watcherssay.
Destinations
IndiGooperatesto38 destinationsinIndia including33domesticdestinationswithinIndiaand5
international destinationswithinthe extendedneighborhoodinAsia.

2. 2
IndiGorolledout its international operationsin September2011.IndiGo's firstinternational service was
launchedbetweenNew Delhi and Dubai on1 September2011. Byend2011, IndiGo had15-18% capacity
deployedforinternationalroutes.Theyare point-to-pointoperatorconnectingmultiple destinationsin
Asia-Pacificandthe Middle East.The servesselectedinternationaldestinations,namely Dubai,Muscat,
Kathmandu, Singapore and Bangkok.
Key Strategy
Homogeneousmedium-sizedfleet
Indigo'swhole fleetconsistsof one familyfleetof AirbusA320-232 aircraft. Thisresultsisingreater
flexibilitybymakinguse of the same crew frompilotstoflightattendantstothe groundforce thereby
cuttinghiring,trainingandupgradationcosts.
Single Class
HavingonlyEconomyclass meansthatIndigodoesnothave to spendtime,moneyandcrew onprivilege
passengers.
On-time Performance
IndiGo‘sOn-Time Performance isone ofthe bestin India.IndiGo‘sTechnicalDispatchReliabilityis99.91%
makingitthe airline withthe leastnumberofcancellationsinIndia.
Point-to-PointFlying

3. 3
Theyare focusedonpoint-to-pointflyingagainsthub-and-spoke model. Throughthistheysavestheir
cost of providingservicesforconnectingpassengers,includingbaggage transferandtransitpassenger’s
assistance costsetc.
Online Booking
Theyfocusmore onsale of ticketthroughtheirownwebsiteinspite of agent’ssite.Thissavestheir
agentcommissioncost. Forthisin May 2011, low-costcarrierIndiGoupgradeditsmobile phone booking
solutionenablingpassengerstocheckinand get weatherupdates.
Focusingonshort/mediumhaul distances
On the network, IndiGoisstickingtorouteswithanaverage stage lengthof 1 hour, 30 minutes.
QuickTurnaroundTimes
The average turnaroundtime is30 minutes. Thisreducesthe flightdelaysandreducedthe operating
cost of the aircraft.
No free Meals
As we have discussedthatlike anyotherlow carrier, IndiGotocharge extrafor each add-onserviceslike
meal,baggage handling,internetconnectivityetc.
OptingFuel EfficientTechniques
IndiGowasamong the firstairlinestohave the aircrafttaxi to the terminal withone engine,shutting
downthe secondengine tosave fuel.Flyingathighspeedburnsmore fuel andalsoif the aircraft
reachesairportearlyand findsnospace,the craft needstoencircle the airporttill the aircraftfindsthe
space.So thiswascurtailedtosave more fuel andhence todecrease the operatingcost.
Indigo'saircrafttry to save fuel byusing software to optimize flightplanningforminimumfuel burning
routesand altitudesandalsobymakinguse of latestfuel savingtechnology.
Sale & lease-backof Fleet
Sale andlease backisa processwhere airlinessellaircrafttoa leasingfirmata highervaluewhichthen
leasesaircraftbackon monthlyrentalstothe original owner,thereby helpingthe airlinesave oncapex*.
In thisprocess,Airlinestypically sell the aircrafttolessorsand,if the marketison the upswing,make a
minimumprofitof $3-4milliononaplane,since the price wouldhave risensince the orderdate.
Throughthissmart leasingtechniquethe airline alwaysfreshentheir fleet;thisinresultlowersits
maintenance costtoo.
IndiGohas six-yearsale andlease backagreementsformostof itsplanes.The lessortakesthe planes
back afterthisand the airline caninducta brand new one initsplace. Takingtheirfleetonlease saves
theirhuge amountof moneyforthe future maintenance andrepair.
To structure the lease andfinancingstructures,IndiGohiredCFORiyazPeermohammed,anoldEmirateshand
whohandledtreasuryandcorporatefinance athisearlierjob.
Low Costmeansno lowquality
*Capital expenditures (CAPEX or capex) are expenditures altering the future of the business.

4. 4
Withthe introductionof steplessstairsandQ-busters,IndiGois the onlyIndianairline witha boarding
ramp‘,resonatingtheairline‘suncompromisingcharacteroncustomercomfortwhere low
-costnevermeanslowquality.Steplessstairsallowspassengerstoboardintothe aircrafteffortlessly,
and Q-busterhelpsinprovidingthe boardingpasstopassengersanywhere withinthe airport premises.
Deliveryof planesatthe place of operating
IndiGopreferstohavetheplanesdeliveredinDelhi.Thiscomesatamarginallyhighercost,the advantage isthat
twosetsof pilotsandcreware not outof the systemfor10-15 daysrequiredtofetcha plane from
Toulouse (the place of manufacturinginFrance).
OperatingAircraftforMaximumHoursPer Day
IndiGooperate itseachAircraftfor 12 hoursper dayagainstAir IndiawhichOperate onlyfor9 hoursper
day.
Low SpentonMarketing
Theyspendverylow on marketing and advertising.The airlinerelymore onmouth-to-mouthpublicity
for the company.
Lounge Facility
The IndiGoevenhave luxuriouslounge facilitiestocaterto theirpremiumcustomers,the facility allow
themto escape fromthe crowd andwork & relax inpeace and quietness.Servicesinclude hotbuffet
meals/snacks&non-alcoholicbeverages,internetworkstations,wi-fi andavarietyof newspapersand
magazineswhichischargeable.
TicketlessTravel
IndiGoalsooffersticketlesstravel;thatmeansyoudon’tneedtocarry a ticketwhile boarding,youjust
needtocarry the confirmationpage printoutandyourcredit/debitcardfromwhichyouhave booked
your ticket.
TightlyframedmaintenanceCost
Indigohasa Powerbythe Hour contract with International AeroEngines (IAE),whichprovidesthe
engines,thatputthe onusof performance deliveryonthe manufacturer.IndiGohassimilaragreements
withAirbus,aswell aswiththe vendorsforothercritical components.These contractsprobablycome at
a premiumbutit meansthatIndigodoesnothave to pull outplanes fromservice forrepairsandalso
doesnothave to maintaina large inventoryof spares.

5. 5
Profit Statistics
In comparisontootherairlinesIndigohasbeenable toflylarge numberof seatcapacityperweek.While
otherairlinesare bleedingintolosses,duringfinancial year 2012-13 IndigoAirlinesreportedaTotal
Revenue ofRs. 94.5 billion,OperatingIncome of Rs. 9.93 billionand NetIncome ofRs. 7.8 billion. This,
however,isonlyhalf the story.AnanalysisbyET Magazine of the airline'sbooksrevealsthatitisindeed
sale-and-leasebacktransactionsthathelpedIndigorecordhigherprofits.Insome cases,these
transactionsturnedlossesintoprofitsasithappenedinfiscal 2011.
Salesof IndiGogrew 17.5% to Rs.11,117 crore for fiscal 2014 against Rs.9,458 crore inthe previous
year. Netprofit was recorded Rs. 317 crore in fiscal year 2014.
Financial documentsthatInterGlobefiledwiththe Ministryof CompanyAffairs(MCA) alsoshow that
the seven-yearoldairline consistentlyreportedprofitsfromitsthirdyearof operations.Of course,it's
not as simple asthat.Three accountingexperts thatET Magazine approachedsaythe transactionsdone
by Indigoadhere toAccountingStandards,andone of themcalledthese accountingentriesasfinancial
engineeringtodrive more value outof investment.The combinationof operationalperformance and
financial engineeringhasamplifiedIndigo’svaluation.Indeed,analystslinkedIndigo’sdecisiontofinally
publicize itsannual resultsasa gamble toattract investorinterestandlistonbourses.
FleetSize & Structure of Indigo
IndiGousesall AirbusA320 familyfleet. The A320Family(A318, A319, A320 and A321) isthe world‘s
best-sellingsingle-aisle aircraftfamily.With99.7% reliabilityandextendedservicingperiods,the A320
Familyhasthe lowestoperatingcostsof anysingle aisleaircraft.

6. 6
Aircraft In service Orders PassengersCapacity
Airbus 320-200 94 2 180
Airbus A320neo -- 180 189
Total 94 182
Purchase of AirbusA320neo
The A320neo, available from2016, incorporatesnew more efficientenginesandlarge wingtipdevices
calledSharkletsdeliveringsignificantfuel savingsofupto15%,whichrepresentssavingsof over400,000
USgal of fuel andup to3,600 tons of CO2 annuallyperaircraft.Inaddition,the A320neoprovides
adouble-digitreductioninNOx emissionsandreducedenginenoise.Thisorderforindustry-leading,fuel-
efficientaircraftwill allowIndiGotocontinuetoofferlow fare.
IndiGoCarGo Service
IndiGotodaycarry more than12000 tonsof cargo in theiraircraft,onmonthlybasis.Theyare into
General cargo,Perishable cargo,Postal mail,Dryice (DG),Courieretc.
IndiGoTravel Insurance
To protectthe IndiGotravelers,airlines hasatie up with TATA AIG. The Insurance providescoverage for
accidental,accidentalmedical reimbursement,trip cancellation,baggageloss,flightdelay,and common
carrier delay and trip interruption.
IndiGoTravel Solutions
Apart fromtheiron-time flightservice,IndiGoalsoprovidesfacilitieslike Cabrental, hotel booking,and
holidaypackagesonthe prescribedrates. These additionalfacilitiesprovide travelersone-stopsolutions
for theirtravel tothe destinationcountry. Theyhadatie-upwithnumberof hotelsandcabservicesto
avail these facilities.
IPO Offering
On 2 November,2015, IPO was announcedwiththe aimto collectcashinon a boominbudgetair
travel. Accordingtothe article publishedinReuter, IndiGohaspickedCitigroup(C.N),KotakInvestment
Banking,Morgan Stanley(MS.N) andJPMorgan Chase (JPM.N) asleadmanagersfor the listing,aswell
as UBS (UBSG.VX) andBarclays. InterGlobe AviationLtdraised$459 millioninanintial publicoffering
aftersettingthe pricingat 756 IndianRupees/share. ThisisIndia’sbiggestsince the listingof the listing
of around$750 millionbyBharti Infratel Ltd(BHRI.NS) inDecember2012. It will make itsmarketdebut
laterthismonth.
Awards & Recognitions
 BestLCC (low-costcarrier) bythe Airline PassengersAssociationof India(2007)
 BestLCC at the GalileoExpressTravel Awards(2008).
 CNBCAwaaz's Travel Awardforbestlow cost airline (2009, 2013
 Skytrax Awards – Best lowcostcarrier (2010, 2011, 2012, 2013, and 2014).
 The Airline of the Year(India) atGMR GroupIndiraGandhi International Airport Award.
 Most Valuable Brand2014 in Aviation byLogisticsbyWCRC100 Most Valuable brandsof the
year(2014)
 SecondBestBudgetAirline inAsiabySmartTravelAsia.com readers (2014) and manymore

7. 7
IndiGostandsout as one of the India’sverybigLCCsearningworldrecognition,withoutrelyingona
political connection,governmentconcessions,protectedmarket. The airline hasproveditselfthatitis
possible togrow andkeepthe marginshighinspite of keepingthe priceslow. Withitsfetishfor
punctuality,newplanesandaffordablefares,IndiGoissteadilyascending.One of the reasonswhy
IndiGoincreasedisalsobecause of the factorof India’s Open Sky Policy, whereinthere are no
restrictionsonflyingbetweenIndiaandSAARCcountries.
IndiGo'sprofitshave being abnormallyhighrelative toitsrevenue.Withrisingfuel costsstrainingthe
entire industry,questionsare beingraisedaboutIndiGo'sabilitytosustainitsposition andcanbe able to
face the stiff competitionbybothstand-aloneandlow-costsubsidiariesof full-service carriers.Customers
switchingtootherLCC because of lowproductdifferentiationinbasicservicesandavailabilityof other
optioncan become anotherthreatforthe airlines.
Ref:
http://www.icmrindia.org/Short%20Case%20Studies/Business%20Strategy/CLBS120.htm
https://www.academia.edu/3704611/73257560_Indi_Go_Airlines_Kavita_Lakhani
http://in.reuters.com/article/2015/03/27/indigo-airlines-ipo-idINKBN0MN0LN20150327
https://book.goindigo.in/
http://www.livemint.com/Companies/rKfs8hlRDeHB7jDFpUQ5oL/IndiGo-reports-sixth-straight-annual-
profit.html?utm_source=copy
http://in.reuters.com/article/2015/11/02/indigo-ipo-idINKCN0SR1AK20151102
Keywords:
LCC, lowcost carrier,budgetairlines,IndiGo,indigo,airlines,point-to-pointflying,hub-and-spoke
model,profits,meals,lounge,fare,price,destinations,travel, business,class, fleet,airbus, A320,cargo,
lease-back,sale,turnaround