Don't splurge, fly high: Secret of Indigo co-founder's success
IndiGo, which has announced a draft deal to buy 250 Airbus aircraft, has consistently racked up profits as rivals become mired in red ink from cut-throat fare wars. Its co-founder Rahul Bhatia explains his business strategy.business Updated: Oct 16, 2014 10:41 IST
IndiGo, India's biggest carrier, which announced Wednesday a draft deal to buy 250 Airbus aircraft, has consistently racked up profits as rivals become mired in red ink from cut-throat fare wars.
No-frills IndiGo has posted half-a-dozen years of straight profits -- even with high aviation fuel taxes, ramshackle airport infrastructure and vicious fare fights -- thanks to the airline's zealous cost-consciousness, analysts say.
Billionaire airline co-founder Rahul Bhatia is legendarily tight-fisted, telling Forbes magazine in 2010 that his credo is "thinking before spending a single dollar" and asking himself, "Do I need to spend it? Can I get away without it?"
The New Delhi-based carrier, co-founded by Bhatia, who is group managing director, and former US Airways chief executive Rakesh Gangwal in 2006, is unlisted.
Read:IndiGo to buy 250 Airbus A320neo aircraft
But analysts say IndiGo, which depends a lot on word-of-mouth recommendations rather than advertising, could stage a debut share offer in mid-2015.
IndiGo's air-hostesses, who wear smart uniforms and perky blue hats, give the airline a premium feel while its nearly 100% on-time performance has wooed customers, analysts say, giving it a 33% market share.
The purchase of the 250 medium-range, single-aisle Airbus A320neo aircraft -- the biggest single airplane purchase in a deal worth $25 billion -- is aimed at serving one of the world's fastest-expanding aviation markets.
For decades, Indians depended on the bone-jolting railway. But tens of millions now travel by plane thanks to cheap fares, sometimes as low as rail tickets, and an expanding middle-class's paycheques.
India's airline sector has massive potential, analysts say, with air travel penetration just 0.04 air trips per capita a year, far behind developed countries like the US with over two air trips per capita a year, according to government figures.
Wednesday's memorandum-of-agreement is also part of Indigo's drive to keep its fleet young to minimise maintenance and fuel costs.
Analysts say IndiGo has taken a leaf from budget US carrier Southwest Airlines -- flying to fewer destinations than rivals but offering more flights on those busy routes to maximise plane-capacity usage.
Read:IndiGo, GoAir to operate more flights this winter than others
IndiGo, which operates over 500 daily flights to over 30 Indian destinations and five abroad, has also pared costs by keeping planes in the air longer and rapid landing-and-takeoff turnarounds.
Still IndiGo has not been immune to India's sharp economic slowdown, reporting that its full-year profit to March 2014 nosedived by 60% to Rs 3.17 billion ($51.6 million).
But IndiGo's financial performance far outdistanced other carriers. Budget rival SpiceJet, for instance, posted a record net loss of over Rs 10.03-billion last year while another listed carrier, Jet Airways, lost Rs 36.67 billion.