These are not salad days for the Indian airline industry. With aviation fuel prices soaring, and the rupee dropping, airlines have been seeing a drastic reversal of all the gains made in the growth in city-to-city air travel in the past decade. While the most dramatic casualty was Kingfisher Airlines, SpiceJet and Jet, long industry leaders, are facing losses and decreasing market shares. Emerging as the winner in the airline sweepstakes is IndiGo, founded in 2006 and now the fastest-growing, biggest airline in the country. It has been an eventful journey of rapid growth, overtaking established players and cornering what amounted to a 36.1% market share.
With a net worth of $3.6 Billion – Rahul Bhatia is among the richest persons in India and the founder of InterGlobe Enterprises Limited that owns IndiGo, the largest and most profitable airline in India. IndiGo airlines commenced operations in 4th August 2006 and had its Initial Public Offering (IPO) in October 2015. After the listing of the airline on the Indian stock exchanges BSE and NSE, Forbes magazine declared him the twentieth richest person in India (jointly with his father Kapil Bhatia), with a net worth of $3.1 billion. India Today magazine ranked him #17th in India’s 50 Most powerful people of 2017 list.
With a degree in Electrical Engineering from the University of Waterloo in Ontario (Canada); Rahul primarily owns three businesses: –
- InterGlobe Hotels: It is a joint venture since 2004 with French hospitality group “Accor” that owns the “Ibis” hotel chain. There are 850 Ibis hotels in 40 countries. Tier I and II cities are their main targets, as is proximity to major business districts.
- IndiGo Airlines: This is the Rahul’s most successful project for which he has received the much-deserved fame, recognition, and acclaim!
- InterGlobe Technologies: This is their IT service and BPO (Business Process Outsourcing) firm that specializes in travel, transportation, and hospitality.
- Other than these, an avowed foodie, Rahul also owns several restaurants too!
Other than that, he is also on the Board of several companies including: – InterGlobe Technology Quotient Private Limited , InterGlobe Aviation Limited , InterGlobe Aviation Private Limited , Acquire Services Private Limited , Bharat Telecom Limited , InterGlobe Foundation, InterGlobe Education Services Limited , InterGlobe Established Private Limited , InterGlobe Luxury Products Private Limited , InterGlobe Technologies Private Limited , ITQ Consultancy Private Limited , Shree Nath Shares Private Limited , and Pegasus Utility Maintenance Services Private Limited.
Talking about his personality, Rahul is one of the very few guys from the airline industry who prefers to casual shirts to business suits, holds an understated approach and maintains a low profile to avoid external distractions and to stay focused on business and can be seen running away from the spotlight.
Travel was never the first career choice for Rahul!
After completing his degree he had come back to India with an aim to set up a telecom venture with Nortel to make digital telephone exchanges. But since the government at that time, didn’t favor foreign technology, that project didn’t see the daylight.
During that time, Rahul’s father used to run an airline agency called Delhi Express, which he had cofounded along with nine partners in 1964. Even though, Rahul wanted to opt for teaching as a career, looking at his father’s health he took the emotional decision of joining the family business in 1988. Towards the end of 1991, Rahul and his father discovered that some of the partners had managed to gain a majority stake in the company by secretly buying more equity in the company. Post this, Rahul and his father were asked to leave the company.
All the problems falling at the same time, Rahul realized that he needed to will have to plunge into the business with full-steam, and decided to start over with $37,000 as seed capital.
All he had with him was a degree along with a two-year stint at IBM. And with that in hand, he started InterGlobe!
But InterGlobe wasn’t IndiGo back then. It was, what is now called InterGlobe Technologies, that took care of their IT Services and BPO section, which mainly specialized in travel, transportation, and hospitality.
It started off with rough days, with cash crunches every now and then! But, the power of relationships triumphed and all the airlines whose business had been with the old company moved to InterGlobe without exception. In 1994, they also managed to gain the all-India franchise for what is now Galileo International (an airline reservation system), and then a Joint Venture with them to provide back-office services in 1999, as well.
Over the period of time, he transformed it into a conglomerate with interests in travel technology, hospitality, business jets, and retail, etc…!
While at it, Rahul also developed a close friendship with Rakesh Gangwal (CEO, US Airways). This is when he started to make ground for the next leap of starting his own airline. Rahul and his father had been talking about starting an airline, but Rakesh was somehow hesitant of getting into the business, due to the high mortality rate of the industry. The persistent man that he was, Rahul waited till he convinced Rakesh. Once he was convinced, the together they applied for the airline license in 2004 and started IndiGo Airlines!
Make of IndiGo Empire
The airline license was acquired in 2004, but the company didn’t take off until 2006!
IndiGo was a jointly owned entity by Rahul Bhatia of InterGlobe Enterprises and Rakesh Gangwal of Caelum Investments. InterGlobe owned 51.12% stake and Caelum Investments held 48% in IndiGo.
With aviation, fuel prices soaring, and the rupee dropping, these were some of the most difficult days for the Indian airline industry. When industry leaders like Kingfisher Airlines, SpiceJet, and Jet, were bleeding money, Rahul took a bold step to enter the market at such a time.
To top that, he made headlines and shocked everyone when he went shopping and ordered 100 Airbus A320-200 aircraft, at $6.5 billion at the Paris Air Show in 2005. This was when IndiGo had not even been launched.
IndiGo received the delivery of their first Airbus aircraft on 28th of July 2006, post which they started their operations on the 4th August 2006 with a service from New Delhi to Imphal via Guwahati. By the end of 2007, the company received 15 more aircraft.
And by December 2010, with a market share of 17.3%, IndiGo managed to replace Air India as the third largest airline in India, just behind Kingfisher Airlines and Jet Airways.
In 2011, the company gave the market another shock when it placed an order of 180 more Airbus A320neo aircrafts worth $15 billion. In the same year, on the completion of 5 years of operations, the airline was also granted permission to launch international flights as well.
In the next two years, IndiGo not only became the most profitable airline in India but also became the largest airline in India in terms of market share as well. Soon, they also surpassed several competitors to become the second largest and fastest growing low-cost carrier in Asia just behind Indonesian airline Lion Air.
As per official reports, in FY13; IndiGo reported revenues of $1.6 Bn and net profits of $130 Mn.
In 2014 – IndiGo secured a $2.6 Bn loan from the Industrial & Commercial Bank of China for 30 planes, and then in the next consecutive year, launched their ₹3,200 crore (US$480 million) IPO. By now they had paid out a total of $600 Mn in dividends.
As of January 2o18, IndiGo accounts for a total of 109 aircraft and operates more than 1000 flights to 48 destinations (41 in India and 7 abroad) in a day. And with a 36.8% market share, the company has grown on to become the largest airline in India.
Success of IndiGo
The success of IndiGo is largely because of their unique business model and operational strategies used by the company.
Having said that – success has not come easily for IndiGo! What has helped them reach that success, is their strategies.
It had started with just ₹100 crores, that’s around $20 Mn of the promoter money. Even then, they managed to close a deal for 100 aircrafts and at a low down payment.
Well, two words – Rakesh Gangwal! Rakesh held nearly 35 years of experience in the airline business and was a well known and credible face in the industry. Due to which Airbus was very much fine with accepting his terms. Other than that, the advantage IndiGo also had was that they were making a bulk deal, which helped them bring down a lot of costs too!
The company not only had to pay a down payment of just 4% but also received a 40% discount on the list price for placing an order for 100 aircraft.
The reason for a buying a single type of aircraft (Airbus A320) in similar seating configuration was to make use of the same crew from pilots to flight attendants to the ground force thereby cutting hiring, training, upgradation and maintenance costs.
Additionally, the deal also included a Sale-and-leaseback financial model! When IndiGo goes shopping, it uses a 6-year sale and leaseback agreement. This model just means the lessor takes the airplane back after six years, so the airline can induct a new one in its place. They believe new aircrafts are better than old.
The other benefit of such a lease agreement is that, since IndiGo’s aircraft is new, it does not have to go through frequent overall checks, which may call for major repairs. Such a check normally takes place once the aircraft is about eight years old.
Now, moving on to the operations end of the airline….
Operating a budget airline successfully is all about execution, and quite frankly, IndiGo has delivered on that count, flight after flight, day in and day out.
IndiGo has opted to be a low-cost carrier and offers only Economy Class seating that accommodates 180 passengers per aircraft, due to which they don’t have to spend time, money and crew on privilege passengers, or maintain expensive lounges at airports.
Then, IndiGo does not provide in-flight entertainment or complimentary meals in any of its flights and offers a buy onboard in-flight meal programme, which helps them to keep fares low.
On the other end, IndiGo is also known to maintain the quickest turnaround time. Their ground staff has been trained to deplane all passengers in six minutes, unload and load the hold within 10 minutes, with strict instructions to remove dirt, dust, and waste from the aeroplane, and get the plane ready to fly again in 25 minutes or less!
A note is also mentioned on the plane that asks passengers to pull the window shades down and rearrange their seat belts to the original position before leaving the plane. Such small steps help them to achieve the turnaround time. And helps the airline to fly about 12 hours every day!
Talking about the destinations that the airline flies to – IndiGo operates over a lesser number of destinations than its competitors, but then hold a higher frequency. This is achieved because – all of Indigo’s destinations are connected to at least two cities while most are connected to 3 or more destinations.
Due to this, Indigo is able to fly for a longer duration and save up on airport charges and maintain a high aircraft utilization rate of more than 11.5 hours per day per plane.
Lastly, domestic fuel taxes can be as high as 30% along with an 8.2% excise duty, which more-or-less accounts for about 45% of the total operating costs. This is 15% more than the global average of 30%.
IndiGo saves fuel by using different ways. First, they use software to optimize flight planning for minimum fuel burning routes and altitudes and also use latest fuel-saving technology. Second, Indigo has inducted Airbus A320neo family into their fleet, which claims to deliver 15% less fuel consumption and 8% lower operating costs. The company is also involved in Fuel hedging after the government allowed it in 2007.
And IndiGo also has the aircraft taxi to the terminal with one engine, shutting down the second engine to save fuel. This moderates the aeroplane’s speed in the air and saves fuel.
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