Indigo's obsession for details when it comes to cutting flab is paying rich dividends to the low-cost carrier.
Like a model in a beauty pageant, low-cost carrier IndiGo is obsessed with weight management. The light coat of paint it uses on its aircraft has reduced their weight by around 50 kg. It has ordered seats which weigh just 12.8 kg, a new record in India. All its aircraft are cleaned and scrubbed thoroughly every day so that garbage or dust does not raise its weight.
Each of these functions may cut just a fraction of the flab of a 42-tonne aircraft. Taken together, the reduction is not insignificant. Just as a model cannot hope to win a pageant unless her body is in terrific trim, IndiGo has realised that it needs to cut the weight of its aircraft to keep its head above water.
A lighter aircraft means lesser fuel burnt during flights. Jet fuel accounts for 55-60 per cent of the cost of operations for IndiGo. Thus, IndiGo burns less cash than its rivals when its aircraft are flying in the skies. The closely-held airline does not disclose financial numbers. According to KPMG analyst Mark D Martin, a lighter aircraft can cut an airline’s operating costs by as much as 10 per cent.
There’s more. The airline’s bosses have told the ground staff that all they have is six minutes to de-plane all the passengers and, believe it or not, 10 minutes to load and unload baggage. Most of the times, the ground staff is able to meet these targets. IndiGo staff readies the aircraft for another service within 22-25 minutes. In comparison, the average turnaround time for most carriers is above 30 minutes. Of course, the faster the aircraft is turned around, the longer it can fly and earn money.
IndiGo’s obsession for details has paid rich dividends to India’s latest low-cost carrier. Less than two-and-a-half years after it started operations, it has become the biggest standalone low-cost carrier in the country. Its market share improved to 15.4 per cent in December 2008 from 10.2 per cent in December 2007. Overall, IndiGo is placed fourth in the industry after Kingfisher, Jet and state-owned Indian.
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The airline claims that the occupancy of its flights is better than others. IndiGo reported passenger load factor of 75.7 per cent in December, while the industry average for the month was 65.6 per cent. At least one rival says the load numbers could be misleading: “IndiGo’s Airbus aircraft have 180 seats, while a carrier like SpiceJet or JetLite using Boeing aircraft would have around 196 seats. So a 69 per cent load on SpiceJet actually means it carries more passengers than a 75 per cent load by IndiGo.”
That might be true. Also, fewer seats mean higher costs per seat. Still, IndiGo’s performance comes at a time when low-cost carriers have been losing market steadily to full service carriers. From January to September 2008, the share of these budget carriers shrunk from 47 per cent to 41 per cent. The trend reversed in November when IndiGo’s share jumped sharply from 12.8 per cent to 14.7 per cent.
Aditya Ghosh, the low-profile president of the airline, says there is no magic mantra and IndiGo sticks to the business plan laid out some years ago: “There is no rocket science. We have staggered our growth and kept the model simple. We are an economy product and want to be better than the best amongst low-cost carriers.”
Confronted with the unprecedented economic meltdown, most airlines have revisited their business plans and cut aircraft orders or delay them, IndiGo has decided to stay with its original plan to take deliveries of another six aircraft this year, apart from the eight that joined its fleet last year. As it inducted a new aircraft every 6-7 weeks last year, IndiGo has the youngest fleet in the sky with an average age of just one year. New aircraft, of course, require low expenses on maintenance.
After much prodding, Ghosh says the airline has a three-pronged strategy: keep costs lowest amongst low-cost carriers; provide passengers best on-time performance, clean aircraft, affordable fare and reliability; and grow cautiously (unlike the unbridled expansion undertaken by the first low-cost carrier, Air Deccan) without tinkering with its business model.
War on costs
On an average, an IndiGo aircraft flies for around 12 hours a day, compared to eight to 10 hours logged by most competitors. Ghosh says that the extra hours allow it to undertake one extra flight daily, which translates into more seats and revenue.
To do this, the airline realised early that it has to ready its aircraft for another flight quickly. Its first target was 30 minutes. Aviation experts scoffed at IndiGo as the norm for turnaround in the country was nearly an hour. To everybody’s amazement, IndiGo has bested the target: it has brought the turnaround time in secondary cities to a mere 22 minutes and on many days it has achieved the feat in less than 25 minutes in busy airports like Delhi.
Some industry experts say these numbers alone aren’t good enough. “Even we started with a turnaround of 25 minutes. Improving asset utilisation is a key element in the low-cost strategy. IndiGo is following the model we started,” says Air Deccan founder G R Gopinath.
For Ghosh, these numbers are vital. “We have broken up the job into small parcels like loading, unloading and cleaning with time targets and each of these is monitored. The team is trained to focus on its job. We have even turned around an aircraft in 14 minutes,” says he.
Ghosh, however, makes it clear that this does not mean that the airline is liberally hiring staff to achieve these targets. The targets have been achieved without bloating the company’s rolls. IndiGo employs about 100 people for every aircraft and this number is kept under a tight leash. Competitors SpiceJet and Go Air have over 130 employees per aircraft.
There are other simple ways IndiGo has employed to trim costs. The airline, for instance, was amongst the first customers for the Select1 V2500 engines manufactured by Zurich-based IAE, a joint venture between Rolls Royce and Pratt & Whitney, which will help it cut fuel-burn by around 2 per cent.
To reduce its cost of holding inventory of components, IndiGo has done a tie-up with Air France under which the French airline will stock components required by the Indian carrier. “The inventory will not be on our books and that will help us in reducing costs” says an IndiGo executive.
Of course, these savings do add up eventually. And Ghosh claims IndiGo’s cost per available seat kilometre is 40 per cent to 50 per cent lower than full service carriers and also the lowest amongst low-cost carriers, though he does not mention by how much.
Wooing the customer
Ghosh and his team have tried to attract customers with more than just low fares. And the clincher, he claims, is its on-time performance of 94 per cent — nearly two percentage points higher than its closest rival.
This, Ghosh says, has helped the airline gain customers, though it does not have a loyalty programme. “We do not cancel or withdraw flights suddenly. We don’t have a loyalty programme but 50 per cent of our fliers are repeat passengers,” says he.
To ensure that its flights depart and arrive on time in spite of the dense fog that envelops Delhi and other northern cities without fail every winter, IndiGo has one of the highest percentages of pilots who are trained to fly under such conditions. According to the latest figures released by the civil aviation ministry and the Directorate General of Civil Aviation, nearly 38 per cent of IndiGo’s pilots are CAT III compliant or are able to fly under low visibility. In contrast, its competitors like SpiceJet or JetLite do not have any pilot in that category. Even full service airline Jet has only 22 per cent of its pilots trained to fly under fog.
To support such high on-time performance, IndiGo has set up a centralised operations control centre which monitors the weather, anticipate delays and even provides advance information to the ground staff in case an aircraft requires some repair or maintenance while it is airborne so that the engineers are ready to rectify the problem and waste no time once the aircraft lands.
This, Ghosh claims, has helped the airline to get one of the best scores on technical dispatch reliability. At 99.97 per cent, it is the best not just in India but across the globe, says he. This means that only nine out of 3,000 IndiGo flights are affected due to technical problems.
Detractors say these numbers are exaggerated. Based on data available from www.flightstats.com , an international portal which monitors flights across the globe, the average on-time performance of IndiGo was only 60 per cent between November 15 and January 2009, which is lower than SpiceJet’s 64 per cent, though better than JetLite’s 26 per cent and Indian’s 38 per cent. They also point out that IndiGo’s technical dispatch reliability of 99.97 per cent needs to be scrutinised. Sources in airports said that such a high figure means that only four IndiGo flights in three months get cancelled due to technical reasons, which seems unlikely and low.
Challenges ahead
In spite of the debate, sector experts are quite impressed with IndiGo. Analysts say that IndiGo has the potential to become a global low-cost carrier, provided it can tide over the current slowdown. Says Kapil Kaul, who heads the operations of Centre for Asia Pacific Aviation in India: “If it has the cash to sustain itself for another two years, IndiGo surely will be one of the big players in the low-cost space globally.”
At the moment, little is known about IndiGo’s financial health because it is not listed on the stock exchanges and, therefore, does not have to put its profit and loss statement in the public domain every quarter, though it is certain the company is in the red like all other Indian carriers. “I don’t think its losses will anyway be less than SpiceJet. It needs to put in more money to build its brand, which surprisingly it has kept very low profile” adds Kaul. (SpiceJet reported a loss of almost Rs 18 crore for the quarter ended December 2008.)
When crude oil prices were at their peak of almost $150 a barrel in August last year, Indian carriers were projected to report a loss of Rs 8,000 crore in 2009. Crude oil prices have since fallen to a third, which has come as a huge relief to the carriers, though no new loss estimates have been made.
This poses a threat to potential investors. The case of Air Deccan, where the huge losses on its books got exposed only after it went for a public issue of equity shares, would still be fresh in their memory.
But everyone agrees that IndiGo has assiduously avoided the super fast growth strategy of Deccan, which many say put the airline in trouble and forced Gopinath to sell out to Kingfisher. For instance, the airline operates from 17 cities, while Deccan with a similar fleet touched over 43 stations. “We consolidate in a station before we go to new ones, gain the loyalty of the passengers there and offer more flights,” says Ghosh. Quietly, in many cities like Ahmedabad and Jaipur and in the North East, IndiGo has become the largest operator.
Will IndiGo’s flight last in the turbulent market? Will it be able to put together enough cash to sustain its business? Or will it lose steam midway like Air Deccan? The tough part has just begun for Ghosh.