IndiGo Eyeing 'Underpenetrated' Market
The President of IndiGo, Aditya Ghosh, in an interaction with Jayant Baranwal, Editor-in-Chief of SP’s AirBuz, talks about how IndiGo contributes to India’s aviation growth story.
SP’s AirBuz (SP’s): Can you elaborate on the strategy of IndiGo behind this historic order of A320neo?
Aditya Ghosh (Ghosh): Fundamentally, India is a large country with very little aircraft penetration. We are a country of a billion people with less than 400 commercial planes in this country. Countries like Indonesia, Malaysia and Brazil have three or four times the aircraft density of India. Air travel saves time too. For instance, the fastest train link that is connecting Delhi to Mumbai takes 16 hours while a typical flight will cover the same in two hours approximately. India is severely under-penetrated market in terms of aircraft density. An opportunity is staring right at us. For IndiGo, we are going to take delivery of these planes between 2018 and 2026. Also, some of these planes will be used to replace the older ones. This new order provides with a great combination of growth and stability over the next decade.
SP’s: You do speak about the blend of growth and stability. Can you elaborate this for us?
Ghosh: The key growth driver for the Indian aviation including budget airlines has been and will be in future – the need for high quality low fare travel. Also, reaching out to people who have not had the opportunity to fly so far and that is a huge section of the population in India. We have clearly noticed that there is a correlation between GDP growth and rise in passenger numbers. That gives an idea of the potential. We are here to make sure that for the next decade or so, IndiGo contributes to India’s aviation growth story. At the same time, the long-term nature of our order helps us plan way into the future and provides us with stability. We can plan for routes, pilots, crew, aircraft maintenance, office space and training facilities and so on and so forth. Not based on some pie in the sky but a real firm order with a real delivery schedule of airplanes.
We believe that the lower operating costs of the A320neo aircraft wil allow us to maintain and improve upon the structural advantages we believe we have over our competition.
SP’s: 530 Airbus in total that is tremendous faith in the Airbus family! Can you elaborate?
Ghosh: Our firm orders of 100 A320 aircraft in June 2005 and 180 A320neo aircraft in June 2011 were each the largest single order of aircraft from Airbus at the time of the order, according to Airbus. We were one of the first airlines globally to order the A320neo aircraft, according to Airbus. Based on current announced production rates, Airbus has just over 8.5 years of current backlog for the A320 family of aircraft, according to Airbus. The Airbus A320 is a very mature and proven product. Its fly-by-wire technology gives it an edge too. At the same time, the new engines on the neos combines a proven airframe with a far more fuel-efficient propulsion system delivering lower seat mile cost.
SP’s: A320neo, what all benefits do you see with this type?
Ghosh: The A320neo aircraft incorporate more efficient engines and large wing-tip devices called ‘sharklets’ and deliver improved fuel savings of up to 15 per cent over current generation A320 aircraft without sharklets, according to Airbus. All of the current generation A320 aircraft delivered to us since January 2013 also incorporate sharklets. We believe that the lower operating costs of the A320neo aircraft will allow us to maintain and improve upon the structural advantages we believe we have over our competition. These aircraft enter our fleet from fiscal 2016 onwards.
SP’s: When do the deliveries begin?
Ghosh: The deliveries will take place between 2018 and 2026 and will overlap with the 2011 order deliveries, which will begin delivery at the end of this year.
SP’s: We believe the size of order runs into about $26.5 billion. How about funding this massive acquisition plan?
Ghosh: IndiGo has successfully financed more than a hundred planes till date with a mix of solutions, whether it is operating leases or finance leases. The fresh order will also be financed in the same manner. In any case, we have three more years before the planes from this aircraft order begin delivering and therefore, we have enough time to think through this.
SP’s: It appears that you have a clear strategy of operations, domestic and international. Could you share the same?
Ghosh: As an economy product, our endeavour is to provide the best-in-class experience to all our customers and focus on three simple things — on-time flights, hassle-free experience and low fares.
Our growth strategy involves increasing the frequency of flights in markets that we currently serve and expanding into new underpenetrated Tier-II and Tier-III cities in India and potentially to select new destinations in Southeast Asia, South Asia and the Middle East. India with its huge domestic population combined with the lack of air capacity provides a huge opportunity for us to chase. The world is turning to India. We too would like to focus on primarily being a India focused carrier. And every once in a while open up a few international routes. Airplanes are simply a resource and we will deploy that resource wherever we see the maximum returns for it.
Consistent with our domestic strategy, our international strategy revolves around the basic principles of the lowcost carrier (LCC) business model, including point-to-point traffic. We strive to offer convenient connections between the domestic and international flights on our network without creating any complexities of transfers or additional checkin procedures.
SP’s: Could you tell us how these new aircraft are going to be deployed?
Ghosh: We intend to continue to strengthen the depth of our network by adding flights in our existing key markets and selectively adding routes and destinations that we believe will enhance the breadth of our service in a sustainable and profitable manner.
SP’s: What differentiates you from other airlines. Explain how you have been able to have sustained profitability?
Ghosh: Simply put, we are a pure low-cost carrier and we stick to that model consistently. We aim to be better than the best amongst low-cost carriers. Our endeavour is to provide the best-in-class experience to all our customers. Everything we do is straight out of a business school case study about low-cost airlines. We don’t buy multiple types of aircraft, we don’t offer things like business class and airport lounges. We don’t believe in hybrid and complex models of service. Then, we have been lucky with a committed leadership team and a set of founders which has remained the same. Stability at the top helps. The other big factor is that our cost of production is the lowest in the country. A lot of focus on improving yields but we focus only on reducing costs by sticking to just the basics. In mature, affluent markets like the United States and Europe, airlines like EasyJet, Ryanair are also following this model and have been profitable for years.
As an economy product, our endeavour is to provide the best-in-class experience to all our customers and focus on three simple things — on-time flights, hassle-free experience and low fares.
SP’s: Any likely tie-up with Qatar Airways?
Ghosh: We have had talks with them for a marketing tie-up but nothing else is on the radar.
SP’s: How do you view 5/20 rule in the country?
Ghosh: Firstly, whatever I say will sound biased. Having said that, the new airlines feel disadvantaged by it. At the same time, There are also older airlines are shackled because of the very onerous route dispersal guidelines. We have to fly to certain markets. We cannot reduce our domestic capacity to increase international flights. Making it easy just for those guys will be an anomaly. We have this one opportunity where we could take a fresh look at all the interconnected policies of civil aviation, whether its RDGs, ground handling, ability to hire foreign nationals, fuel taxes, rising airport charges or for that matter harmonisation of the DGCA regulations with that of the FAA and EASA. Fortunately, there are only 8-10 of them. We are not going through a quagmire of 100-odd. There should be a level playing field for Indian carriers to do well. For me, the bigger unfairness lies in this unlevel playing field. If we are looking at 10 policies, I am open to relooking at all of them. But not one by itself.
SP’s: The next wave in aviation is said to belong to regional aviation. What are IndiGo’s plans?
Ghosh: We have 430 narrow body airplanes to come and we are focusing on the markets that are best suited to this airplane. That is not to say that there isn’t a market for smaller airplanes. But it will require a different model and a different cost structure to turn it into a sustainable and profitable business.
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