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This article was first published 16 years ago  » Business » 'Indigo is fastest growing low-cost carrier'

'Indigo is fastest growing low-cost carrier'

October 26, 2007 16:29 IST
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Indigo Airlines is one of the most efficient low-cost carriers operating in the skies today with one of the lowest costs of operation. In a market where all the players have been quite tentative with capacity addition, it is adding an aircraft every month.

It has a fleet of 13 A320s today, a market share of just over 8 per cent and by the end of March, it expects to operate a total fleet of 18. It is covering 15 cities today and is moving steadily towards a breakeven. CEO Bruce Ashby spoke to Anjuli Bhargava on his carrier's strategy, the industry scenario and how going international is not always the logical or sensible extension for a domestic carrier. Excerpts:

You must be the only carrier expanding at this pace currently…though maybe Deccan in its initial phase was faster.

We are the fastest growing low-cost carrier today. I'm not sure what Deccan did back then.

They grew like there was no tomorrow...

Well, we still have a tomorrow (laughs)…so I guess that's true. We have added a lot of flights. We started in August 2006 and have now carried more than 2.5 million people across 15 cities.

What kind of revenues are you generating?

That's kind of hard to work out, as we're adding an aircraft every month. Our planes are running somewhere between 70 and 85 per cent capacity, depending on the month. And we're collecting an average fare of around Rs 2,500-3,000 per passenger, again depending on what month it is.

I understand your costs per askm (available seat kilometre) are among the lowest. Then you may be among the first low-fare airlines to break even...

Our cost is around Rs 2.50 per askm and may be the lowest in India at present - it's close to SpiceJet's. It's lower than just about everybody else's. As we grow, this should come down with economies of scale. One of the things that happens when you start an airline is that your economies of scale are miserably bad! One or two airplanes going to five airports with one flight a day…it works out to Rs 5-6 per askm. And then it starts to come down. A big part of our goals last year was to fly on time, keep fares affordable, get economies of scale and then to start to make money, and we achieved all of those goals.

Except making money?

Yes, that's true. I could make up some fairly tale about how if you ignore the start up costs etc, we're really profitable. The truth is we're not. But we're tracking the plan for getting profitable very well. We always said that from the time we launched it would take 18-24 months to get profitable and I think we are on track to do that. I expect to see some profitable months later this year. If we averaged Rs 3,000 all year round on fares, we'd be profitable.

This, despite the fact that a lot has changed since you launched…the structure of the industry, consolidation, extraneous factors like fuel prices and taxes?

Interestingly, nothing very relevant to our business plan has changed at all, even though many things have changed. The paint on the airplanes is changing. But it has not led to any noticeable change in our fares, strategy and product as yet. Yes, fuel prices have gone up - but that's affected everyone. There were congestion issues, which still exist - just slightly worse.

Isn't going international at some stage a logical extension?

There are different kinds of international. Like, say, Kathmandu, which is a bit further than Kolkata. If we could fly tomorrow to Kathmandu where we can fly with the same airplane, same fare structure, same product and it just happened to be in another country, that would be okay.

But if it requires a different seat, entertainment on board, ovens on board, hot meals, business class, first class…then we wouldn't do it. Because then it means a different type of aircraft, different spare parts, different pilots, in other words, a huge amount of complexity which makes the first few airplanes you get for doing that the most expensive airplanes you'll ever see in your life. It sets you back years in your profitability spectrum.

We decided before we got airplanes that we just weren't going to enter into that. It's not the business we're in. It's like we sell economy cars, not luxury ones. To suddenly go international is to change everything you're doing. And it would be such a change in strategy, it would be like starting a new airline.

There have been several unsuccessful low-cost carriers in the US - the instant they got international wide-bodied aircraft, they went bankrupt. Just died instantly! America West, a very successful carrier based in Arizona, flew around with A320s and 737s, made money. Then the management decided to get 747s and fly to Ohio and within 12 months they were bankrupt.

Our business is very targeted. It's just domestic India, low fares, be on time, hassle free, no long lines, no fuss. Just new safe reliable airplanes. We have only one kind of airplane. We're not trying to go international, we're not trying to fly A380s, A330s or ATRs. We're not trying to buy anyone, we're not looking to get sold. We're not trying to merge, consolidate, acquire or anything else. We're quite dull, relative to everybody else. But on the other hand, it's a very successful formula for building a good company - to just stay focused on doing one thing and doing it well.

What about full-service carriers like Jet and Kingfisher? What are their chances of doing well with their international forays?

I don't want to say that carriers that fly international are not successful - that's not true. But the business here is not very forgiving. It's a gamble. India is a huge, huge originating market for international travel. There's certainly a business here.

My old carrier US Airways was a big domestic US airline which got a few international planes and started flying. I was in charge of that operation for a few years. It's not that it was completely unsuccessful but it was very expensive. We had around 18 airplanes out of several hundred for the entire airline. But the cost of that operation was massive.

For example, if you looked at the cost of food, it was over 50 per cent of the cost of the food for the entire network even though it was only a handful of planes. And the cost of flying once a day into London or Frankfurt was very-very high. They are incredibly expensive airports and you get charged a fortune and you have to have all this infrastructure to handle one landing and one take-off. Pilots had to be paid more, they required twice as many flight attendants and I can go on and on. It highlighted for us the diseconomy of scale when your main operation is one thing and you try to do something else.

In today's scenario, who do you consider your closest competitor?

In the grand scheme, we compete with any airline in India that flies to the places we fly. So, in that sense, we compete with everybody. If you mean airlines that have a business model similar to ours, the answer would be SpiceJet. They have one type of airplane and similar size, fare structure and flying pattern. So, they are probably our closest competitor in terms of strategic alignment. We compete more with Air Deccan, just because of their size than we do with SpiceJet. But in many cases, Indian (Air India) offers incredibly low last-minute fares.

And what about Deccan in its new avatar?

Threats come in different flavours and colours! Let's see what happens. But I don't anticipate anything being materially different in what we do as a result of anything that Air Deccan does. Whether they become more like Kingfisher or more this and that, I don't think we'll change what we do at all. Our strategy is pretty basic.

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