Up, up and away
How IndiGo went from being a small airline to a spunky player which took on aviation biggies to grab third spot in the market. Tushar Srivastava reports.india Updated: Jan 16, 2011 01:21 IST
A decade ago, they were just another bunch of travel agents in a sea of similar commission brokers. But Rahul Bhatia apparently knew how to make sense of the decades that his family-run business, InterGlobe Enterprises had put in, doing the stuff and turning it into something bigger.
Barely five years after it started off as a humble budget airline that people hardly noticed, Gurgaon-based IndiGo Airlines has emerged as a big challenger in India’s aviation industry, taking on deep-pocketed industry leaders Jet Airways and Kingfisher Airlines.
Its strategy to focus on some routes and maximise the impact of its limited fleet seems to have laid the ground for an ambitious takeoff. Earlier this week, IndiGo moved European stock markets when it announced the biggest commercial aviation deal in history.Topping up an earlier plan to buy 100 planes with another 180 in the decade from 2015, IndiGo unveiled a shopping bag for $15.6 billion (around R 70,000 crore) to buy Airbus aircraft that would power its ambition to become an international airline.
Much remains to be seen in an industry which has seen many ups and downs, but one thing that could give Bhatia, 48 – an electrical engineer from the University of Ontario, Canada – an edge, is the intimate knowledge of dealing with passengers day in and day out, unlike aviation entrepreneurs who came from unrelated backgrounds.
His father Kapil Bhatia was an early entrant in the travel industry. He began his career as a sales manager and in 1964 founded Delhi Express Travels, which gradually developed into a group of travel-related organisations.
IndiGo’s growth story has many admirers. Kapil Kaul, South Asia chief executive officer of Centre for Asia Pacific Aviation’s rates the IndiGo success story higher than that of Jet Airways. “The competition faced by Jet wasn’t as high as IndiGo, which faced a more competitive environment when it started operations. To make a profit of R 550 crore last year when others were struggling is huge. They will make massive profits this fiscal,” Kaul said.
Headquartered in Gurgaon, InterGlobe has grown from a single enterprise to a formidable travel corporation and has a network of 52 offices across 23 cities in India and abroad and has a significant presence in the fields of aviation management, travel-related services, travel technology, travel distribution services and hotel development and management services.
Airlines have come and gone ever since the skies were opened up nearly two decades ago to private carriers. While East West Airlines and ModiLuft had glamourous starts that gave way to rickety landings, Jet seemed to be only one going steadily forward until Kingfisher arrived.
As it happened, the budget airline that fired the country’s imagination, Air Deccan had bitten off more than it could chew and ended up as an appendage of Bangalore rival Kingfisher, while Jet gobbled up Air Sahara.
IndiGo, the country’s largest low-cost carrier, in contrast, has behaved more like the tortoise in the proverbial race with the hare. From day one, it has behaved as nothing but a no-frills airline, and has focused more on walking than talking its way through the industry. The efforts seemed to make a big mark last month when it edged past the decades-long state monopoly, Air India, to the third spot with a market share of 17.3% in the domestic industry. Jet has a domestic market-share of 26.2 per cent and Kingfisher 19.1 per cent, while Air India stands at 17.1 per cent.
When most airlines were in the red, Indigo announced a R 550 crore profit in 2009-10 on a turnover of R 2,664 crore. With a fleet of 34 Airbus A320 aircraft, it offers 221 daily flights connecting 24 destinations. It has an all-Airbus fleet comprising the 180-seater Airbus A320-200.
Secrets of success
Industry veterans who’ve seen Bhatia’s dizzy rise say he has had a concrete plan from the very beginning. Bhatia, the Group Managing Director for InterGlobe, who has had a two-year stint with IBM, got the Kolkata-born, former CEO of US Airways, Rakesh Gangwal, as a partner. An engineer from IIT Kanpur, Gangwal had previously worked with Air France. “They had a well-structured business plan and got the right team. The first CEO, Bruce Ashby built the right systems, processes and competitive cost structures. Gangwal has vast experience of global aircraft financing acquisition while Bhatia has over 30-years experience of the sector. The ‘game-changing order’ of 100 aircraft in 2005 gave a tremendous leverage to the company in pricing terms,” said Kaul. “We’ve been concentrating on what the customer wants: on-time departures, clean aircraft and good and clean flying experience. We plan to stick to these and not try anything funny,” Aditya Ghosh, President, IndiGo told HT.
The airline has an impressive on-time performance record (80.6% for November 2010).
Indigo and its promoters are known to keep a very low profile – again something that makes them very different from their high-profile media savvy competitors – with marginal spending on advertising and marketing. They have instead relied on word of mouth publicity to build a dedicated client base.
“He doesn’t open up easily,” says Rajji Rai, Bhatia’s senior at Modern School, Barakhamba Road.
However, the airline is known to make news with its smart business moves. In 2005, at the Paris air show, the yet-to-be-launched airline placed a $6 billion (R 26,000 crore) order for 100 Airbus planes laying the ground for its grand entry into the aviation sector. Of these, 34 are in service.
“Rahul can identify the best talent in the market and convince people,” said Rai, who is President of the Travel Agents Association of India.
“The office of Delhi Express Travels was right next mine in Connaught Place. From there, the father-son duo launched InterGlobe and in 20 years, Rahul has completely transformed the company. In travel agency business there have been two crazy success stories – InterGlobe and Naresh Goyal of Jet Airways,” he said.
Many believe that behind the success story is a network built over the years. “Indigo managed to get the prestigious hanger number 1 at the Delhi airport, which had for long been with the national carrier. It shows the tremendous clout of the airline,” said Captain Mohan Ranganathan, a Chennai-based aviation expert.
IndiGo completes five years of local operations in August, a key requirement for local airlines to fly overseas. It has already submitted a proposal to the aviation ministry and shortlisted 15 international sectors including Dubai, Bangkok, Singapore, Kathmandu and Jeddah. Kaul believes IndiGo could be one of the leading low-cost carriers of South Asia. “Over the next 10-15 years, they will have 245 new aircraft, which indicates large domestic expansion plans, robust business plans for international operations to South Asia, South-East Asia and West Asia,” said Kaul. “The range of the aircraft is perfect for operations in India, Middle East and other places,” added Ghosh.
With the beginning of international operations, the budget carrier would take on rivals Jet Airways (fleet size 97 aircraft), Kingfisher (66) and Air India, which has over hundred aircraft in its fleet.
What’s the big deal?
IndiGo’s 180 aircraft deal with Airbus has shifted the world's focus on India. “The historic order is a very strong comment on India's overall economic growth, the growth potential of country’s aviation sector and the confidence of IndiGo’s business plan, its ability to execute such a large order and to raise funds for it,” Kaul said.
Ghosh said the deal is a “symbol” of their rising confidence. "This order for industry leading fuel efficient aircraft will allow IndiGo to continue to offer low fares,” Bhatia had said after signing the deal.
How the airline funds the deal would be keenly watched. Sources said it was planning an initial public offer of shares to fund the purchase. “The airline has been profitable for the last two years and is expected to make massive profits this fiscal. In this three-year period, including this fiscal, they should have a cash reserve of $300 million (R 1,300 crore). The economic crisis taught companies to have cash on their books and IndiGo would like to maintain the cash reserve to deal with any unforeseen incident,” said Kaul. “As far as funding for this deal is concerned they still have 4-5 years.
Among the instruments available before them is to raise money through an IPO, which looks like a possibility. They can also go for a private equity investor,” he said.
“We have various financial options available and anyway six years is a long time,” Ghosh said.But some advise the airline to be cautious. “How long can you sustain operations at such high rates is the question. Another crisis in the financial market or a rise in oil prices and the whole thing will fall flat. It will be very difficult for the airline to sustain this kind of growth it has seen in the last few years. The Indian market can, at the most, have 3-4 big players,” Ranganathan said.
Sceptics have their fingers crossed but in the game of big tycoons, Bhatia — who is a keen golfer — has fought a handicap to emerge like a true professional. Last year, Bhatia was chairman of the Delhi Golf Club. If, like a good golfer, he manages to understand the terrain and weather conditions, his airline may keep its place in the list of elite carriers.