What's behind IndiGo’s momentous shift

On April 25, India’s largest private airline IndiGo finally bit the proverbial bullet and announced its decision to introduce a second aircraft - a wide body - in its fleet, a momentous decision for any airline that has stuck so firmly to narrow body planes only till now. With the firm order for 30 A350-900 (with options for another 70), the fundamental tenets on which this business stood for 18 years are altered forever. This is usually a seminal moment for any airline in its journey.

More recently, along with bumper profits, the carrier also announced its intention to introduce business class seats for busy domestic routes by this year end, a logical corollary of the bigger decision of entering the wide body and thereby long haul space. In a nutshell this means that after 18 years as a low fare carrier, IndiGo will metamorphose into a full service one over a period of time.

Natural Evolution

The decision is the natural evolution for an airline that currently operates with over 350 aircraft, occupies dominant position (around 60%)  in the domestic skies and has the largest share of India’s international traffic at 15.7% in 2022-23, an area Indian carriers have some catching up to do with over half of India’s international traffic captured by foreign carriers.

The latter is a matter of deep regret for India’s aviation industry, including the ministries and government officials who have been vested in it. Inducting wide bodies will also help IndiGo retain some of its best talent across functions but especially among senior commanders who see a move to wide bodies the next logical progression in their careers. The airline has already lost valuable talent to carriers from the Middle East, as some were unwilling to wait for IndiGo to make this leap. 

From a country wide point of view too IndiGo’s decision to foray into long haul makes imminent sense. Ever since 1991 liberalisation and once Indians started traveling overseas for business, education and leisure, most of the outgoing and incoming traffic has been captured by a clutch of foreign airlines. Bureaucratic red tape and poor running practices ensured that Air India lacked the wherewithal to give these rivals a run for their money. It was only once Jet Airways started international operations that Indian airlines began to wrest back some of the Indian traffic. With many private airlines now operating international routes, the share of Indian carriers has slowly inched up to 43 percent. With IndiGo entering the long haul market, policy makers and government hope more of this pie is cornered by Indian owned and run players.

At A Precarious Moment In Time

But fliers and the aviation industry response to this vital decision has been muted, given what is perceived to be a steadily declining standard of service on offer from IndiGo in the last two years. The airline has been growing to keep pace with demand but managing size is proving to be a challenge. In FY 24 alone, it added 65 aircraft with 12 damp leases. With the aircraft order book at just below 1000, the carrier will add an aircraft per week for the next several years.

With size, several passengers argue that arrogance has crept into the airline staff at various levels and many fliers feel the airline takes them for granted. A large and growing number are so disillusioned with the leader that they pick it for travel only under compulsion : when they have absolutely no alternative, which with its present market dominance still ends up being pretty often!

So what are fliers looking for when they pick IndiGo? No last minute cancellations, no delays, a clean aircraft, a polite crew and of course a safe transfer. While the airline is still managing the last three quite efficiently - incidents of bad behavior of crew tend to get blown out of proportion in today’s social-media led world - the airline’s slippage in on-time performance has been sharp and persistent. In April 2024, the leader recorded an on-time performance of 76 per cent across Delhi, Mumbai, Hyderabad and Bangalore as per DGCA data with its Mumbai on-time at 67 percent. Even though this was better than December 2023, when its overall OTP had slipped to 67 percent and Mumbai was at 44 percent! But compare that with December 2017, when IndiGo led the OTP figures among the Indian carriers with the four metros at 81 percent and Mumbai at 61 percent. A range of constraints including airport infrastructure at Mumbai has resulted in low OTP for the city across airlines. On time performance was at some point the airline’s unique selling proposition, with one of its advertisement tag lines declaring “Late Is A Four Letter Word”.

The fact that flights are often delayed along with the fact that the fares are no longer “lower” than rivals appears to have led to lower load factors for the carrier. March and April 2024 data on the DGCA’s site shows 85 and 86 percent PLF for the leader, lagging behind Akasa, Vistara and Spicejet and almost on a par with Air India, which is certainly not setting stellar standards on most airline parameters. It’s not a club IndiGo would aspire to belong to!

Airline insiders say that a lot of this slippage is primarily on account of various factors outside their control and that the airline’s schedule has also been impacted due to grounding of aircraft, which makes it virtually impossible to spare an aircraft from a tight schedule when one about to fly faces a last minute technical glitch. In the short run, there’s very little the management can do to rectify the problem. Infrastructure constraints at airports like Mumbai exacerbate matters.

As 6E Does A 9W

Although many details are not yet fully known, investors and shareholders too are wary of both decisions : introduction of a full service, business class product and the wide body induction as this means IndiGo is now doing a Jet, a dangerous turn to take, as one aviation analyst put it. The announcement of introducing both a business class product and a long haul one makes logical sense but has several implications for the bottomline besides a fundamental and structural change in the airline’s DNA. The industry response to the two big  announcements has been tepid at best, as many try to glean the fallouts.

The introduction of a wide bodied aircraft (two aisle configuration) for a narrow body player has huge implications on almost every front but the biggest is cost. Low fare airlines the world over refrain from introducing a new aircraft type as that usually leads to cost escalations as spares, crew, technicians and engineers for each variant differ and this means having a parallel set up for each type of aircraft although IndiGo’s A321 and A350 are from the same family and so the airline expects to leverage some synergies and keep a cap on costs.

But not everyone in the sector is convinced and many argue that its success has been in “sticking to the knitting” and these new moves run the risk of escalating costs and confusing the product for passengers, as was seen by the industry with Jet and Jet Lite. Moreover, for the long haul product to work, IndiGo would have to build a hub and spoke system since point to point traffic on many international sectors is unlikely to fill wide body aircraft.

“I would venture so far as to say that this leap by IndiGo might not have taken place if the second founder Rakesh Gangwal was still equally involved”, argues a former IndiGo top management source, speaking on condition of anonymity.  He calls it a courageous decision, one that requires luck to be on their side as well.

However, in a  recent call with investors, the airline’s CEO Pieter Elbers defended the airline’s decisions, adding that this was a natural step for the airline to take and that the decision had not been taken lightly but with much deliberation and full confidence. Standing on IndiGo’s present perch, the aviation industry cannot take his words lightly either.

How things play out is impossible to predict as of now but suffice to say for now that going forward, India’s once favorite low fare airline will be a brand new creature, fundamentally altered from when it first took to the skies in August 2006. Whether this will eventually help India wrest some of the international traffic back from foreign rivals while holding all those vested in India’s most successful airline in good stead or not, it is much too early to say.