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Strategy Awards: Low-Cost Leadership

India is both a potential gold mine and mine field for airlines. Demand for air travel has been fuelled by the country's rapid economic development and an increasingly affluent middle class, resulting in the rapid growth of the airline market after the country liberalised the industry more than five years ago.

Yet, a high-cost environment and lack of infrastructure have made this one of the toughest places to make money. Indian carriers have not made it easy, dumping capacity to build up market share and using aircraft that were ordered in the last wave of exuberance almost six years ago. The red ink that drenched the income statements of Jet Airways, Kingfisher Airlines and Air India, which have tried to combine full-service operations with a low-cost subsidiary, are a testament to that short-sighted philosophy.

Over the last few years, new entrants like lndiGo and president Aditya Ghosh have taken a different path. Together with other low-cost carriers like SpiceJet and Go Air, sense and focus have been their motto. An industry veteran described the Indian market as "low fare" rather than "low cost", forcing this group to innovate and stick to basic principles to be successful.

IndiGo, a five-year-old, privately owned carrier, is the most impressive. It has posted profits over the last three years with margins of more than 20%. It has become the second-largest domestic carrier in those five years and its average load factors remain higher than most other airlines. This year, it ordered 180 Airbus A320neos to keep its fleet young and costs relatively lower while growing its domestic and international networks.

"Indigo has been outstanding," said one judge. "It held its nerve when business was booming too fast, and stuck to its mission."

The low-cost operating model is still new to India, even though it accounts for almost 70% of domestic capacity - 80% of air travel in India was for business five years ago, and is now less than one-half that amount. Still, there are numerous challenges for airlines like IndiGo.

There is competition from rivals in the Middle East, Southeast Asia and south Asia. At home, it competes against more than six carriers. A shortage of airports in India's Tier II and Tier III cities hinders domestic expansion, and none of the major cities have secondary airports. The Indian consumer is used to low fares, making it hard to raise prices. Because of lower internet penetration in India, low-cost carriers have to use additional distribution channels that increase costs.

These challenges have not fazed Ghosh and his team. IndiGo initially was run by an expatriate management team that helped get it off the ground. Ghosh and his team, who have been running the airline for the last two-and-a-half years, have made it into a serious player in the Indian domestic market.

Since launch, IndiGo has been near the top in the domestic on-time performance rankings. It went ticketless from day one, offering customers web and mobile check-in facilities. Staff with laptops offer passengers the capability to check in anywhere at the airport. It also uses a boarding ramp, enabling faster loading. Its media campaign has focused more on customer service and less on pricing where it is hard to be competitive.

These have made IndiGo a highly profitable airline in a difficult operating environment, where it has differentiated itself as a reliable and service-orientated carrier. It has shown that with innovation and focus, there can be such a thing as a consistently profitable Indian airline.

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