INTRODUCTION

This case examines closely how IndiGo positioned itself in the market and how it competed with
giants like Jet Airways and Air India and went on to gaining a market share of more than 40%. For that
we need to get a brief understanding of IndiGo and its operations.
IndiGo is a low-cost airline headquartered at Gurgaon, Haryana, India. It is the largest airline in India
by passengers’ carried and fleet size, with a 41.3% domestic market share as of June 2018. It is also
the largest individual Asian low-cost carrier in terms of jet fleet size and passengers carried, and
the seventh largest carrier in Asia with over 46 million passengers carried in 2017. The airline operates
flights to 66 destinations – 51 domestic and 15 international. It has its primary hub at Indira Gandhi
International Airport, Delhi.
The airline was founded as a private company by Rahul Bhatia of InterGlobe Enterprises and Rakesh
Gangwal, a United States-based expatriate Indian in 2006. It took delivery of its first aircraft in July
2006 and commenced operations a month later. The airline became the largest Indian carrier in
passenger market share in 2012. The company went public in November 2015.

Facts and Figures

 10 consecutive years of Profitable operations
 Market share of 42.5% as of January, 2019 (refer exhibit 1)
 Fleet of 213 aircraft including 71 new generation A320 NEOs, 127 A320 CEOs, 14 ATRs and
1 A321 NEO.
 Recognized as ‘Great Place to Work for in India’ for 8 years in a row (2008- 2015)
 Named as Aon’s Best Employer for the year 2016 and 2017

IndiGo, the largest Indian airline by market share, blamed the stunning decline in June 2018 quarter
net profit due to reasons such as high fuel prices and a competitive fare environment. But it's been
dealing with another vexing problem: Faulty engines.

Instead of propelling the carrier's planes into the air, a specific type of US-made engine has grown
annoyingly consistent at keeping them grounded.

The engine issues have plagued IndiGo since the airline inducted its "Neo" fleet (in 2016), which is
now 36-strong. First, an oil chip was the source of the trouble. Later, aviation regulators warned of in-
flight shutdowns -- that is, when engines shut off completely without the pilot's prior knowledge.
COST CONTROL
When InterGlobe (Holding company of IndiGo) completed 25 years, there was no money that was
frittered away on a gala. A simple message by the board. They fly on profitable routes. For example,
Spicejet bought Bombardier Q-400's to fly to Tier-2 cities. These kinds demand heavy on maintenance.
Compare that to Indigo which flies only on metro routes.

They have one type of aircraft. The A320's. Their orders send jitters to their competitors. They order
100's of them at once. They get huge discounts and gives them the bargaining chip in terms of service
contracts etc. Compare that to Spicejet, Jet which have different types of aircrafts - thus needing
training for the crew, the ground staff separately which thereby increases cost. IndiGo is only happy to
fly the A320's.
Another benefit of IndiGo's lease strategy is that it allows the company to keep its fleet extremely
young. The company's leases typically range from just three to six years before the aircraft is returned.
Newer planes are typically more fuel efficient and require less maintenance, which cuts down on
operating costs.

They fly on profitable routes. For example, Spicejet bought Bombardier Q-400's to fly to Tier-2 cities.
These kinds demand heavy on maintenance. Compare that to Indigo which flies only on metro routes.
- They have one type of aircraft. The A320's. Their orders send jitters to their competitors. They order
100's of them at once. They get huge discounts and gives them the bargaining chip in terms of service
contracts etc. Compare that to Spicejet, Jet which have different types of aircrafts - thus needing training
for the crew, the ground staff separately which thereby increases cost. IndiGo is only happy to fly the
A320's.

IndiGo’s Time Peculiarity - They are serious about flying on time. They stick to their schedule. The
business class loves this. It’s a shame that Jet Airways which has been in the business for 2 decades and
more finds it difficult to do this.

International routes - They fly to few destinations like Dubai. However, they have taken a cautious
approach and not haven't ordered long haul flights - like the A-380's/ B-777's.
Lease the planes: Airlines typically buy a plane, use it for 15 years, and then sell it for pennies on the
dollar. But when IndiGo takes delivery of an aircraft from Airbus, it immediately sells the plane to an
aircraft lessor, and then leases the plane back. At the end of the lease, IndiGo returns the aircraft to the
lessor.

Fly more, fly on time and keep it simple: IndiGo keeps its planes operating for 11.4 hours per day on
average, which is more than any other Indian airline. Time between flights is extremely short, and the
airline doesn't even bother with offering business class or first class tickets. There's also no frequent flier
program, free lounges or free food and beverages for most passengers.
CHALLENGES

Rude Behaviour of Staff

Indigo is about great customer service. Employees should always conduct themselves in a professional
manner, recognizing that each customer contributes to the success of the company and its employees.
Employees who are subjected to harassing behaviour by a customer should always politely excuse them
and notify the manager. Under no circumstances should the employee confront the harassing person
himself. However, Indigo’s staff has been accused of mishandling the customers for quite a while now.
The problem affecting the airlines are not personal, it is institutional. An institution like IndiGo has to
develop a consumer-friendly approach in dealing with their passengers. Being a leader in market share,
IndiGo needs to look inward and find out the reasons for the discourteous attitude and rude and indifferent
behaviour of their employees, whether it is their cabin crew or their ground staff.

-Shortage of Pilots

This is another problem which is prevalent with Indigo as there has been an acute shortage of pilots.
Hundreds of cancelled flights and disgruntled customers; reprimand from the regulator and a possible cut
in expansion plans -- IndiGo's public image has taken a severe beating in the past one week or so, forcing
analysts to doubt if India's infrastructure and skill gap will support the country's largest airline's aggressive
growth plan. That one storm can disrupt operations of the airline for one month shows that IndiGo doesn't
have a bench strength of pilots, which is essential for the airline's wide network. IndiGo cannot be hand-
to-mouth with crew availability. On any bad day, they will hit the ceiling of regulated flying time of
pilots. The first sign that something was wrong with IndiGo's famed tight ship showed up last summer.
Calls to pilots from the rostering department to work on off days had become frequent and on short notice.
What made the situation more complex was a regulatory change introduced in 2017, extending the notice
period for commanders to one year. While IndiGo with its higher salary was able to poach pilots from
rivals, the new rules made it difficult to do so. The induction of new aircraft is now reaching a rapid and
aggressive phase. Under these difficult economic conditions, a lot of time has been devoted by us in trying
to find ways of rewarding more productivity with financial benefits. Expansion also meant the airline was
opening multiple bases, but crew shortage resulted in uneven staffing in smaller bases. For instance, in
Mumbai, it parks only six planes overnight, but has over 250 pilots, while the airline has stopped hiring
for smaller bases like Pune, Jaipur, and Bhubaneswar. This resulted in increased layover for pilots, leading
to fatigue and uneven duty patterns. Many IndiGo pilots are currently operating three-four days at a
stretch away from home.

-Engine Failures

India's largest airline IndiGo, which flies four out of every 10 Indians, has had to replace Pratt &
Whitney engines on its 32 A320 Neo aircraft at least 69 times in the period May 2016-November
2017. This is an astonishingly high number that raises a question mark over passenger safety in Indian
skies. On an average, a fleet of 100 aircraft requires about 40 such engine changes/replacements in a 3-
year period. IndiGo says these are related to non-detection of chip, carbon seal lining or combustor
chamber lining in Pratt & Whitney 1100 series engines. The airline calls these engine 'glitches' and
'non-safety' issues. Indigo's borescope tests (which are used to test defects or imperfections through
visual inspection by a borescope of aircraft engines and gas turbines, etc) detected these anomalies in
69 instances. As per practice, the defective engines were replaced with other engines. Such engine
replacement is typically done overnight. After the replacement, the defective engine is sent to the
manufacturer to fix the problem. The planes continue to operate with the replaced engines. However,
that's the least of IndiGo's problems as it has had graver issues to deal with. Over the past 18 months,
IndiGo has had three instances of one of the two engines of the aircraft shutting down. The aircraft
landed safely powered by the second engine. Those engines have been replaced and the aircraft are
back in the air. Yet, it is the continuing problems with the engines that raise concerns regarding
passenger safety in Indian skies. Especially, when it comes to India's biggest airline.

SWOT ANALYSIS

Strengths:
Strengths are defined as what each business does best in its gamut of operations which can give it an
upper hand over its competitors. The following are the strengths of IndiGo:

-Positive Image: IndiGo has carved an image of being the most efficient low fare operator not just in
the domestic market but also globally. This image of a low-cost carrier that provides high-quality
services has resulted in making it the preferred travel option for many frequent travellers.

-Services: Indigo offers a wide gamut of services such as multi-channel direct sales, online flight
booking, round the clock customer support through call centres and airport counters, online flight status
checking, a user-friendly IndiGo app for Android etc.

-High stakeholder engagement: Through a robust customer interface Indigo ensures that it keeps
track of customer needs and also communicates to every customer on a regular basis. Indigo also has
a high level of employee satisfaction and has been consistently voted into India’s best places to work
in.

-Highly drive workforce: Indigo is a hassle-free place to work in and this has ensured that they have a
highly motivated and self-driven workforce. Indigo has deployed the i-fly facility where their new
employees are given complete real-time training on how to deliver the best customer service. This has
been considered as the best training facility in this domain. In addition to this, the company also ensures
that their employees enjoy a stress-free environment with a proper work-life balance.

-Corporate Social Responsibility: The Corporate Social Responsibility (CSR) initiative of the airline
named as IndiGo-Reach has undertaken a lot of initiatives for the upliftment and well-being of children,
women empowerment, and environment. Their social work encompasses not just cities but extends to
remote locations as well.

-Fleet Strategy: The fleet strategy of Indigo has always focused on ensuring that the average fleet age
in four years. The airline has also ensured that it purchases its fleet at prices much lower than what a
seller would sell them for. This has helped the airline maintain its low costs consistently.
Weaknesses:
Weaknesses are used to refer to areas where the business or the brand needs improvement. Some of the
key weaknesses of Indigo are:

-Sustaining profits: Indigo is positioned as a low-cost carrier and thus pricing for the airline needs to
be as low as it can be managed. At the same time, the costs need to be maintained as low as possible.
However, Indigo has often been unable to sustain its profits consistently and this can be a weakness for
the company.

-Over-dependence on volumes: In order to sustain profits the company needed to ensure that the
volumes were always high and business could not be affected by fluctuations in demand. This means
that the business needs to ensure that sufficient steps are taken to ensure consistent volumes and this
required an additional investment.

-The grounding of aircraft: After the safety of Pratt & Whitney aircraft became questionable, the Civil
Aviation Authority had to make a decision to ground these airplanes owned by Indigo. This scandal
affected the goodwill and trust of the customer.

Opportunities:
Opportunities refer to those avenues in the environment that surrounds the business on which it can
capitalize to increase its returns. Some of the opportunities include:

-Growing demand for foreign travel: There is a surge in the number of people in India who need to
travel to foreign locations both for business and pleasure. This means that there is a huge scope for the
airline to expand to more foreign destinations.

Threats:
Threats are those factors in the environment which can be detrimental to the growth of the business.
Some of the threats include:

-Competition: The airline faces a lot of competition from brands such as Jet Airways, Indian
Airlines, Air India, Singapore Airlines etc.

-Costing: The key components of cost in an airline is the fuel which is highly fluctuating and in order
to manage the pricing in accordance with the dynamics of fuel prices is a threat today and even in the
future.
IndiGo – The Market Leader
 Indigo's stuck to its low-cost, single class model unlike rivals Jet and Kingfisher
While Kingfisher and once market-leading Jet Airways bought rivals, flew multiple plane
models and struggled to mix full-service and low-fare options, IndiGo stuck with its policy of
offering one class of no-frills service on a single type of plane. Indigo has chosen to stick to the
world's best-selling single-aisle aircraft, the Airbus A320.

 Selling and Leasing back planes helps its balance sheet

Indigo maintains a young fleet by selling and leasing back its planes. IndiGo uses six-year sale
and leaseback agreements, so the airline is constantly replacing its aircraft. This prevents the
need for overall checks and major repairs, which means IndiGo understands how to work the
margins.
Operationally it would be impossible to make a profit at the very low fares they were offering
through the first four years of operations, where ticket prices on Indigo were roughly 40
percent of cost of operation.
Even before starting operations in 2006, Indigo had placed a firm order for 100 Airbus A320
aircraft in June 2005, which gave it a pricing advantage. The airline then acquired parking lots
in Delhi and Mumbai, and by the time the first Indigo flight was announced, it had already
scheduled the first 20 aircraft.

 Quality and detail key to good service

The third reason is Bhatia's obsession with detail and quality. IndiGo's executives, including
staff at the check-in counters, air crew and sales and marketing staff are hired only after Bhatia
meets each of them individually. Besides, the airline also employs far fewer people, with one of
the industry's leanest work forces.

The airline also broke industry standards with simple things like turnaround time. This is the
time taken for a plane to be ready for the next flight between landing and take off. IndiGo
boasts of a turnaround time of less than 30 minutes.

 Customer Focus
IndiGo's success model largely relies on consistent low fares, regular on-time performance and
minimal flight cancellations. However, the airline's biggest edge over others is its focus on
customer focus. Fliers want on time journey at reasonable prices and this has helped IndiGo
inch past stalwarts to reach this milestone.
Other airlines advertise low fares, marketing or other promotional offers on their websites,
IndiGo only emphasises on-time performance. Indigo has continuously built around this image
through its tongue-in-cheek advertisements on television and print media.

 Using technology smartly

Unlike manual systems used by other airlines, IndiGo planes are equipped with a digital link
system for for transmission of short, simple messages between aircraft and ground stations via
radio or satellite called Aircraft Communications Addressing and Reporting System (ACARS).
Before every IndiGo flight departs an automatic message is triggered from the aircraft to its
operations control centre - and immediately the same departure time gets recorded in the
software. Similarly, the moment the flight lands an automatic message is triggered from aircraft
to control centre. Hence, the on-time performance is diligently monitored for every flight in
real time.

Growth Strategies:

-IndiGo has been continuously deploying capacity at a time when its peers are not responding
with the same aggression and promptness. In a situation of stable or range-bound yields and
rising passenger traffic, when incremental capacity is deployed, utilisation levels go up. This is
the stage at which operating leverage kicks in.

-At this point, when a dominant player deploys incremental capacity and gradually raises fares
later, the impact is considerable on in earnings per share (EPS). This is what IndiGo had
planned and it is likely to achieve that goal.

-IndiGo revised its capacity addition for FY19 to 30% from 25%. Most analysts believe that the
aggressive deployment of planes should take its market share to at least 45% in the next three
years from 43% at present. This strategy must be analysed in the context of industry
competition and the financial health of its peers. Jet Airways has been struggling with working
capital debt repayment issues. SpiceJet, on the other hand, has not shown enough aggression
largely due to its size and balance sheet strength. With cash of Rs 13,163.7 crore on its books,
IndiGo is well positioned, therefore, to make the most of an improving demand cycle and
benign cost environment.
Among the listed airlines, the stock of IndiGo has a strong negative correlation with Brent
crude oil prices. According to an estimate of foreign brokerage Morgan Stanley, Indigo’s EPS
moves down 11% for every 1% increase in fuel prices. With Brent crude oil prices falling 34%
from their peak of $85 to $55.6 per barrel, there’s scope for significant improvement in
IndiGo’s EPS.
A cumulative impact of these factors could be seen in the EPS trajectory of IndiGo. According
to Bloomberg. IndiGo’s EPS is expected to show dramatic improvement to Rs 64.64 in FY20
from Rs 12 in FY19 as the above factors play out. The stock has fallen in the past six months
wherein growth in yields and earnings had been low. As operating leverage improves further,
the stock could soar.

*Note: Refer exhibit: 2

 RECOMMENDATIONS:
 The company needs to improve their customer care service.
 There should be more transparency between the authorities and the customer
 The staff’s training should be updated and upgraded regularly

 Positive WoM is a must to attract newer customers. PR is directly linked to the saleability; the
impact takes time, but it is significant.
 Company should be ready to re-market the brand
 IndiGo should also focus on its value proposition

 The most important thing that the carrier should do is to project a campaign through digital media
that looks to rebuild the trust of the customer and project itself as an airline providing high quality
services at a low cost
EXIHIBITS:
Exhibit 1: IndiGo’s Market Share, Source: theeconomictimes.com
Exhibit 2: Source: bloomberg

References:
Economic Times

Live Mint

Bloomberg
Google News

Wikipedia