性视界

THE COMPANY

India is a hard place for airlines to make money given high costs, price sensitive customers and vicious fare wars. Kingfisher Airlines which was India鈥檚 second largest airline shut shop听in 2012 owing $2.5B to stakeholders. SpiceJet temporarily suspended flights last December after it run out of cash. Jet Airways, the oldest and supposedly leading private player, has not been profitable since 2007.

With rivals in the headlines for all the wrong reasons, IndiGo Airlines has proved a bastion of efficiency and growth. Founded less than a decade ago, IndiGo is the not just听the only profitable airline in India, it has been profitable since 2009! India鈥檚 biggest airline by market share, IndiGo Airlines currently carries one in three of India鈥檚 passengers.

BUSINESS MODEL

The no-frills carrier has a clear positioning 鈥� it promises to offer customers:

1. 鈥淔ares that are always low鈥�:听
   • Budget airline positioning with consistent, low pricing but听no heavy discounts.
   • No business or first class offering.
   • No lounges, food or extravagant frills in customer service.
2. 鈥淔lights that are on time”
   • The primary differentiator and branding pitch is “on time, every time”, while competitors solely advertise low fares. This makes even business travelers loyal to the brand, in spite of no听‘First听Class’.
   • As per data released by Flightstats.com, IndiGo is clearly delivering on this promise to customers:

听 听 听 听听听 听 听听

3. 听 听鈥淎 courteous, hassle free travel experience”

• High level of in-flight and ground service is a key differentiator from other budget airlines.
• Youthful urban cues in branding and advertising with a 鈥榗ool quotient and crossover appeal’.

 

 

AN ALIGNED OPERATING MODEL

The budget airline business model is hardly unique – the brilliance of Indigo lies instead in its execution. The听company’s operating model听directly supports and enables the听three听elements of the business model, ie Low Fares, Flights on Time and Hassle free experience for the customer.

It is only on the foundation of the 7 key elements of the Operating Model (as below), that the company seems to have pulled off the elusive ‘Budget听with Quality’ value proposition:

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OPERATING MODEL ELEMENTS	听 听 听 听BUSINESS MODEL ELEMENTS
1.Standardised airplane configuration: They only use Airbus A320 aircrafts, buying in orders of 100 – 200, forming some of Airbus’s largest single deals.听Bulk orders ensure听favorable terms. Pilots, flight crew, mechanics need to be certified for only one aircraft.	听 Low fares听through lowered costs. 听听Flights on time听with more 听 听 听 听 听 听 听 听 听 听 听 听optimized maintenance/flight crew.
2. Lease planes instead of purchase: After delivery, IndiGo immediately sells the plane to an aircraft lessor, and then leases the plane back.听This allows for it to have one of the youngest fleets in the world (average 3.26 years). Keeps cash flow high and debt low. Younger fleets are more fuel efficient, need less maintenance. Lesser breakdowns/snags with younger aircrafts. Customers love newer, cleaner aircrafts.	听听Low fares听through better 听 听 听 听 听 听 听 听 听 听 听 听 听economics and reduced fuel costs.听听 听A hassle free experience听with 听 听 听 听 听 听 听 听 听 听 lesser breakdown/delays.
3. No听non-core offerings: No loyalty programs with听high operating costs. No hot meals on board. No in-flight magazines for initial years.	听听Low fares听with low operating costs 听听Flights on time听with lower Turn 听 听 听 听 听 听 听 听 听Around Time.
4. Fly more but on fewer destinations: It operates a lesser number of destinations but with a higher frequency –听2.2 planes/destination for IndiGo compared to 1.2 for Spice Jet. Highest plane operating time of 11.4 hours per day.	听Low fares听with lower fixed cost and 听 听 听 听 听 听 lower airport charges. 听Flights on time听with more 听 听 听 听 听 听 听 听 听 听 听 听 听controlled Turn Around Time.
5. Use of technology for increased control and efficiency: Planes equipped with the ACARS (only airline in India), that enables exact and real time monitoring by the听IndiGo Operations Control Centre. First airline to use qbuster scanners for passengers traveling without check-in luggage.	听Flights on time听with a highly 听 听 听 听 听 听 听 听 听 听 听controlled, real-time monitoring. 听A courteous, hassle free 听 听 听 听 听 听 听 听 听 听 听 听 听 听 travel听experience.
6. Focus on training and standardized process The specialised iFly Learning and Development Centre听is where staff is trained, and processes are standardized and continuously improved – known to be the best in India.	听Flights on time听with low Turn 听 听 听 听 听 听 听 听 听 听Around Times 听(30- 35 minutes).
7. Focus on secondary product听offerings The team employs resources into听the quirky cold food offerings (e.g., crowdsourced idea for a traditional bun dish), the step-free handicap accessible boarding ramps, creatively designed air sickness bags, reusable cookie tins etc.	听A courteous experience听with 听 听 听 听 听 听 听 听 听 听 听focus on ergonomics.

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FLYING HIGHER

IndiGo听airlines听posted a profit of $ 100M over revenue of $720M in the first fiscal quarter of this year. The company’s maiden听IPO of ~$ 500M in October was six times oversubscribed听and听was India’s biggest IPO since 2012. Already on its way to prove Warren Buffet wrong about investing in airlines?

 

 

Sources

• Asian Brand Strategy (book), by Martin Roll
• http://travel.cnn.com/mumbai/life/brand-story-behind-indigo-044435