In early October InterGlobe Enterprises, a $2.6 billion (revenues) travel and hospitality group, best known for its efficient budget airline IndiGo, will have completed 25 years. No huge celebrations are in store to mark the milestone. Group managing director Rahul Bhatia will address an all-staff meeting broadcast from InterGlobe’s headquarters in Gurgaon, near Delhi, then it will be business as usual. “Why spend all that money?” shrugs Bhatia.
Fanatical cost-consciousness has lifted IndiGo, a rank newcomer eight years ago, to the top of India’s airline market. As per August data tracked by India’s airline regulator, the privately held carrier that has carried 84 million passengers to date has a third of all domestic passengers (Bhatia and dad Kapil Bhatia, InterGlobe’s executive chairman, own 51%). Media baron Kalanithi Maran’s SpiceJet, lately a discount warrior, is a distant No. 2 with close to one-fifth share. Airline tycoon Naresh Goyal’s 21-year-old Jet Airways, co-owned by Etihad Airways, trails in the third spot.
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While SpiceJet and Jet have been racking up losses, IndiGo makes money and has been doing so since 2009. In the fiscal year to March 2013, the latest for which official numbers are available, it reported net profits of $130 million on revenues of $1.6 billion. Though airlines in India were battered last year by the rising cost of aviation fuel and the weaker rupee, IndiGo is believed to have stayed on course with net earnings in the year to March 2014 estimated at $100 million.
“IndiGo has completely changed the concept of what a budget airline should be. Low cost need not mean low quality. I’m a huge fan,” says Deep Kalra, founder of online travel agency MakeMyTrip.com, which is a big seller of IndiGo tickets.
IndiGo’s formula is to offer economy-plus service at economy rates and on-time performance that’s the envy of rivals. This fetish for punctuality has made it, despite its single-class offering, the airline of choice for the business crowd. “Being on time is a wonderful thing. In my experience IndiGo has been late only once–for ten minutes,” says Manmohan Tiwana, founder of Wodehouse Capital Advisory, a Mumbai family office advisory firm, who travels on business every week and ditched Jet for IndiGo five years ago.
Tiwana appreciates the “squeaky cleanliness” of IndiGo’s planes (average age: under 3 years) and is happy to cooperate with the onboard crew as they collect all the trash from passengers before the aircraft lands. A note in the onboard magazine asks passengers to pull the window shades down and rearrange their seat belts to the original position before leaving the plane. These small touches help the airline achieve quick turnarounds of less than 30 minutes between flights.
“Operating a budget airline successfully is all about execution. IndiGo has delivered on that count flight after flight, day in and day out,” says Kapil Kaul, who heads the South Asian arm of airline consultancy Centre for Aviation.
That record is a feat in India, where the state-controlled aviation infrastructure has notoriously lagged rising air travel. While the situation has eased somewhat with the government handing over the running and rebuilding of key airports to private companies, capacity constraints are yet to be overcome. For example, Mumbai airport has two runways, and when one is shut down for maintenance, flight delays are inevitable. Lufthansa and Emirates are currently battling over time slots for the sole parking bay available in Mumbai for their A380 jets.
“I often marvel at what we achieve despite all odds. But we want to deliver the India experience differently,” explains Bhatia over lunch at L’Angoor, one of four restaurants that this avowed foodie owns. For him there’s no fussing over a menu or even much of a walk. The restaurant, whose name is a pun on the Hindi words for grape (angoor) and an Asian breed of monkey (langur), is in the same building as IndiGo’s office.
While I sample a chilled melon soup–it’s a hot and muggy day in Gurgaon–Bhatia restricts himself to a bowl of lentils. He’s just returned from a five-week stay at an ayurvedic clinic in south India 22 pounds lighter, sporting a beard and a cropped haircut.
The airline business doesn’t lack tycoons who are flamboyant and outspoken, but Bhatia, who prefers casual shirts to business suits, has an understated approach and shies away from the spotlight. Flying below the radar and avoiding external distractions to keep focused on business is his mantra, he explains. Father Kapil, who still comes into the office, is equally low profile.
That will probably have to change as the Bhatias, who have kept all their businesses private so far, are reportedly preparing to list IndiGo next year and subject themselves to more public scrutiny. Valuations for the airline range from $1.5 billion to $3 billion though Bhatia won’t speak to those estimates. Nor will he confirm that an IPO is imminent, despite the market buzz, except for saying, “There’s no urgency as we’ve tied up financing for our current needs.”
Recently, IndiGo secured a $2.6 billion loan from the Industrial & Commercial Bank of China for 30 planes. IndiGo needs to quickly augment its all-Airbus fleet of 81 aircraft as the final deliveries of the 100 planes it ordered in 2005, before it started operations, will finish in November.
IndiGo is the launch customer of Airbus’ fuel-efficient A320neo, having placed an eye-popping $16 billion order for 180 planes in 2011, but deliveries of the Neo will begin only by the end of 2015, confirms Kiran Rao, executive vice president of strategy and marketing for Airbus. There is speculation that an aircraft deal is imminent.
Meantime, competition is heating up. The Tata Group’s budget airline with AirAsia’s Tony Fernandes has taken off, albeit with only one plane. Tata has a second venture with Singapore Airlines for a full-service carrier called Vistara. The government has approved a handful of other entrants as well. Bhatia says the arrival of the new airlines will push the industry deeper into the red. As per CAPA estimates, the combined losses of the Indian industry were $1.8 billion in the sluggish fiscal year to March 2014.