CAPALive: IndiGo to recover 100% of int'l capacity by end-2021
Talking at the CAPALive on 9-Dec-2020, IndiGo’s CEO and Whole Time Director Ronojoy Dutta spoke with CAPA’s chairman emeritus Peter Harbison. Some of the key verbatim highlights from the interview can be found below.
IndiGo's CEO Mr Dutta has learnt to use short term plans to navigate through the crisis and communicate at a hyper level.
There has been no financial support from the Indian Government, but IndiGo believes they should be focusing on healthcare, and also on reducing the taxes, as the airline is one of the most taxed airlines in the world.
IndiGo has a strong mission to be a catalyst for growth. Mr Dutta believes "connecting traffic is going to wither".
The airline had no cargo planes but as the demand grew the airline put 11 passenger planes into service with cargo in the cabin.
What I’ve learnt is that we have to weave our way through a number of short term plans, and also communicate at a hyper level
"Well, I've always been a firm believer of long-term planning. To me, any company, airline or otherwise, is only as good as its business model. Building the business model, develop a strategic plan for five years, I'm a great believer in that and that's how I go about conducting business. What I learned from the United experience is you really need to throw these long-term plans out the window. Given the unpredictable nature of what's happening around the company, all you can really do is have a very short-term focus knowing that all your assumptions are going to be proven false."
“Therefore, sort of bob and weave your way through a number of short-term plans. I learned that one important aspect is to not do this, forget five-year or even a one-year plan, but really to run the company on the basis of two to three-month plan. That's what we've been doing in COVID again. It's like, what's going to happen? Is traffic coming back? Will the government allow? We have all this scenario. Quick recovery, doom and gloom, air traffic doesn't recover for years. It's like, all right, this is pointless."
“Just focus on the next two/three months and try and build your way out of it step by step. Every two months be ready to reorient yourself and then come up with a new plan. That's what we've been doing. The other key part of this of course is communication. There's a tendency I think in a crisis to say, 'Okay. No one knows what's happening. I don't know what's happening'. Don't expect me to come out, leading the charge with, 'Hey guys, you're going to do this'. Hey, I don't know what the answer is exactly, but keeping quiet is a huge mistake."
“You need to not only [to] communicate but communicate at a hyperactive level, with your shareholders, with your employees, with your customers, with the governments. Communication strategy becomes such an important part. Those were the main lessons I learned out of the United 9/11 experience. Frankly, that's what we are implementing in IndiGo right now.”
The Indian government has not supported airlines, but frankly I don’t think it’s appropriate in this environment. We want the government to address the high taxes on airlines
"No. It's very different. Again, taking what the U.S. government, the European governments have done in terms of supporting the airlines, the Indian government hasn't. Frankly, I do not criticise them for that at all. They've got enough going on. I would say, look, focus your resources on healthcare, focus your resources on dealing with the migrant labour problem, as you know we have a huge issue here. Focus your resources in helping the weakest sections of society who desperately need help. I think that's where the government's efforts should be."
“As far as the airline industry is concerned, we've had some longstanding issues, which with or without the crisis the government should address. The key one being is we are one of the most taxed airlines in the world. Our fuel taxes are high, our regular fees are high, excise taxes are high. With this high level of taxation, aviation in India really struggles. Again, this has nothing to do with COVID. We have been pleading with the government for years that please address this issue."
“That's where I'd like the government to focus its resources. In terms of subsidies and bailouts, frankly, I don't think it's appropriate in this environment."
“There's some hope that taxes will be rationalised. Not that it'll go down necessarily. This aircraft turbine fuel tax, each state has its own different level of taxation, which is quite confusing frankly. Fortunately, this tax is going to come in what is called the general sales tax. The Indian government has recently promulgated an order saying all these taxes should be central based. GST is now going to be central based, but that's in theory. It hasn't happened yet."
“Rationalising it to GST is good but if at the end of the day the GST is higher than the average of the states then we've taken a step backwards in fact. Will it actually come down? At some point I think the government needs to make sure that overall level of taxation in airlines is reduced, but we don't see that happening in the near short term.”
India desperately needs higher economic growth and more employment, and airline connectivity is a key part of that. IndiGo has a strong mission to serve as a catalyst for growth
“We have a very strong mission for IndiGo, and that is to serve as the catalyst of growth for the country. As you know, India desperately needs higher economic growth, desperately needs more employment, and airline connectivity is a key part of that."
“Now, the government is spending its resources on roads, on railways, on ports, and that's very good. I'm glad they are. Essentially what we're saying is, 'Listen, while you're doing all this, you don't need to distract yourself with air traffic infrastructure. Let us focus on that'. We are spending a lot of money. As you know, we're buying a lot of planes and we are very committed and dedicated to building a great airline system in India. Not as an end in itself, but as a catalyst for growth for the whole country."
“The going at alone, we are very confident that we are on the right path. We were very ambitious about our plans and it really has a very national characteristic to it that let's create jobs. Let's give a boost to the economy. Now to the second part of the question, what is the explanation for our stock price behaving rather well? Well, the backdrop of course is COVID. It all depends on the COVID numbers. The fact that COVID numbers spiked and then have been coming down gradually has lifted the whole Indian economy and many stocks."
“A rising tide lifts all boats. That is the backdrop in which we are having this discussion. Specific to the airline though, again, back to this short-term planning versus long-term, when the COVID hit in March, we were for a moment, at least for a few days, paralysed with indecision. Oh my God, what do we do now? Then we said, 'Guys, no one knows what the future is, but let's look at everything that we do and just get better at it'. People were saying, 'Oh, lay off more, shrink more, stop taking airplane deliveries'. All these micro, micro things."
“We were like, 'We don't know what the right answer is, but just let's look at each of the micro goals and get better'. For example, the product. We thought that it was very, very critical that we ensure that customers feel very confident getting on our airplanes as early adopters, if you will. Because if the first few people come away with a bad experience, they go back tell their friends and family, 'Oh my God airline travel is so unsafe'. Etc. We went out of our way, working with the government, working with a team of doctors to make sure that everything that we did was both medically correct, and also instilled confidence."
“Made sure the product was very good. Made sure the customer experience is very good. We went to touchless travel. Only web check-in. No coming in and standing in line and checking in with paper. We tried to digitise everything in the customer process. Focused very much on this Net Promoter Score. We really wanted our Net Promoter Score to shoot up. It's great to say, 'Let's provide good service'. But how do you measure that? Well, we measured that through NPS. With a lot of training and motivation to the employees, our Net Promoter Scores are higher than they've ever been.”
Cargo perked up, so we took 11 passenger planes and started putting cargo in the cabin. We also went into operating charters
“At the same time, we were looking for new revenue sources. Cargo suddenly perked up. We don't have any cargo planes. We don't have any freighters, but we took 11 of our passenger airplanes and started putting cargo in cabin. That's done very well. Charters. Now, we're a scheduled airline and you know what a difference in process there is between scheduled airline and charter airlines. In charter airlines, you're doing everything in like 48 hours. You don't know what the slots. You have to get permission from foreign embassies, et cetera."
“Yet, again, our people did a great job and went into charter operations. I can go through each one of these. Employee motivation. We said just like we want to improve customer service, we want to improve employee motivation. How do you measure that? Again, through an employee NPS. We did layoffs. We did pretty deep pay cuts, and yet our employee motivation and our NPS is again higher than it's ever been. It's each of these micro, micro, micro goals that we focused on. Basically we said, "When we come out of this, let's be far stronger than we were going in."
We are stronger now than before the crisis, not in terms of cash flows but in terms of each of the smaller goals, that has driven up our stock price
“I think that's what's happened to us. We truly are far stronger now than we were before the crisis. Not in terms of overall cash flows and revenue, of course, but in terms of each of the smaller goals. The product, the customer service, the on-time performance, the package delivery, the digitization of the customer experience. That I think is what's driving up our stock price."
“Last week, we were at 70% of domestic capacity pre-COVID. The government has now allowed us just this week to go up to 80%. By the end of December we'll be at 80% domestic. International is a bigger challenge. We are only flying 20% of our old capacity and that is again, because of the quarantine rules, etc. The 20% we are doing, we are doing through these charters, the bubble flights and so on. Now, the domestic capacity, we hope will be at a 100% by early next year."
“International we hope will recover by the end of next year. It'll probably be a 12-month delay on international. At that point, we'll be back to long-term planning rapidly. In the meantime, we're treading water. We're not really growing at capacity.”
Aviation in India is changing, with a lot going on, and the outcome seems unclear
“India is up for sale and they're about 13% of the market share, I think. What's going to happen to the future of Air India, difficult to assess, right? AirAsia, the parent Malaysia Airlines has expressed a desire to withdraw. The Tata Group seem to be firmly committed to making sure they keep their half, if not grow their share. Again, that is unknown. I honestly don't know what to say. GoAir and SpiceJet have their own issue. I think sometimes they go on cash and carry, sometimes they're off cash and carry."
“There's a lot going on, but the outcome seems unclear. However, I would say, if there had to be a teeter tottering of players, it would have happened by now because I think the worst is behind us, in terms of just cash flow. If you could have survived from a cash flow point of view for the last six months, well, the next six months definitely do look better. I think we passed the eye of the storm in some ways and it should be better sailing at least going forward.”
Industry consolidation is not something we are focused on. We are focused on connectivity and what is relevant to the customer, such as being on time, cleanliness and affordable fares
“Industry consolidation is not something we are focused on, mostly because I don't think it's in our control frankly. We can do what we do. Other people will do what they do, and where the two meet it's not in our control. We focus on things we can control. We want to provide great connectivity and we don't just look at the major metros as Bangalore and Hyderabad. We really focus on the small towns. Again, back to this purpose of let's be a capitalist approach for the nation."
“All the small little cities, which are sometimes pleading for service, we are in there very quickly and very rapidly. To us, that connectivity is so important. We know we won't have non-stop flights from City A to City B, but we have so many different connecting complexes or hub, if you will, so that from City A to City B you can have a flight every two hours connecting to different hubs to get you to City B. That connectivity is clearly a huge part of it. Our product. We think we've positioned our product just right."
“As you know, this product positioning in airline business is hugely challenging. You can try and be too effusive if you will, with your product. I'll give you hot towels and champagne and then you say, 'Oh my God, now we are going broke'. You can go too much to the other extreme where the planes are dirty and the flight's unreliable, and again, then you're out of business too. Getting the product just right, I think is a critical aspect of this. I think we've come up with a very innovative and relevant product."
“We don't say, 'Oh, we are the best service in terms of we'll overkill in terms of food and our in-flight video systems', and all that. We don't do that. We say what's relevant to the customer is on time. What's relevant is affordable fares. What's relevant is cleanliness. We focus on all of those. I think our product focus is a big part of our success as well. The third leg of that is, of course, employees. You can't have good customer experience if your employees are sourly and disenchanted.
“Employee motivation is a third leg of this. Again, connectivity, affordable fares, relevant product, a good customer experience, with all that we will be where we'll be. We don't know. I mean, if you say, 'Do you have a goal for customer share of passengers?' No, we don't, but just by running a good airline, I think we'll do well.”
Revenue management is coming back. We are reaching a tipping point of the economic forecast, so there will be a lot more middle income people to grow passenger numbers
“It's gradually coming back. Now, remember in India, I think we have some unique factors working in our favour. As you know, the penetration of airline traffic in India is very, very small. Only 5% of Indians have had experience with your aircraft and so that number should grow pretty rapidly in the future. Secondly, there's this whole issue of middle-income growth. People have been talking about middle-income growth for years, but we seem to be reaching a tipping point of the economic forecast, which means there'll be a lot more middle-income people, which will help air traffic as well."
“The geography in India is not particularly conducive to travel. Mountains, rivers, long distances. It's almost like Brazil. I think Brazil and India share that characteristic. Therefore, there's like 1.6 billion people travelling by rail every year. Whereas, by air, we get only 140 million passengers. This underlying bubbling of growth, if you will, with middle income, with penetration, with the people substituting air for rail, all of that is helping us and getting our numbers up. In our case, it's all about volumes. It is actually very low.”
India has some of the lowest yields in the world. Our average ticket price is USD50. The good news is that we can only go up
“We don't have to give coupons and all that because India has some of the lowest yields in the world. Our average ticket price is USD50. Now, where in the world do you fly around for USD50? I doubt even Spirit Air has USD50 tickets. They're at USD75 or something. Our yields are really, really an outlier in terms of being very low. That's the bad news. The good news is they can only move up. They can't go down any further. We have these underlying pinnings of macro factors working in terms of volumes, of yields moving up, of airline penetration moving up.
“We don't have to resort to coupons and I'll call them gimmicks almost. We have a very low fare, a very affordable fare, and that's driving a lot of growth.”
Keeping passengers safe has been one of the big issues we needed to address, and we’ve worked hard to give passengers confidence
“Back in March, that was one of the big issues. The two factors that we were uncertain about. What will the government do? Which would be based on the COVID experience. Would they allow more capacity in the air? State to state you have this green zone, red zone, etc. All that government complication. Then the second one is, how will customers behave? Even if the government allows flights, will we be flying empty? Fortunately on the customer experience part of it ... Again, I have to say that the industry, the government and a team of doctors, we worked together."
“There was all this issue of, should we leave the middle seat empty? Etc. Ultimately it was 'Look, you can use the middle seat, but make sure the middle seat passenger has an additional wrap plastic around them so that there's no shoulder to shoulder, etc.' All that I think has given confidence to the flying public. We have been quite vocal. Our ad campaign is a lean, clean flying machine, to instil this confidence into passengers. As I said before, communication is a very critical part. We have to be hyperactive with that communication."
“Whether it's digital or media ads or billboard ads, we've gone all out on the communications part. The load factors are down but quarter over quarter they improve.”
We are focusing on destinations within six or seven hours. That’s a pretty broad geography and strong in terms of growth
“Our international strategy is what we call a four-corner strategy. In the airline business, there's a big cleavage almost between short-haul and long-haul, which is roughly defined by about six hours of traveling. Beyond that, you really need a lot more that the passenger needs. I mean, the body just can't take it. You need more leg space, you need more food, all of those things. We are focusing on a six to seven-hour flight."
“Our four-corner strategy says, where can we fly from Delhi six to seven hours? Where can we fly from Mumbai six to seven hours? Where can we fly from Kolkata six to seven hours? Finally, where can we fly from Chennai or Bangalore six to seven hours? Now, that's a pretty wide geography we can cover. From Delhi, we can go all the way to Amsterdam. From Mumbai, we can go all these African cities on the East part of Africa. From Chennai, we can go to Jakarta and Manila. From Kolkata, we can go all the way to Beijing or Shanghai."
“That's a pretty broad geography, and frankly, a very strong geography in terms of growth and so forth. We're not necessarily looking at connecting international to international yet. We think there's enough domestic demand to these places to drive us there in a narrow body. Therefore, the connecting complex is more domestic to international. If we have Delhi, we want to connect all the smaller Indian cities into Delhi so as to go on to Moscow for example. That's how we are approaching.”
“As an example, I would say Delhi airport is of course, very big, very busy and pretty full. Now, we have this new airport coming up called Jewar, which is being built. That's hopeful for that whole area. Similarly, Mumbai is very constrained, but there's Navi Mumbai which should be ready in the next couple of years I think. At the same time, the Indian government has taken a whole lot of air force bases in small cities and converted them into commercial."
“Yes. The infrastructure has been a constraint, but we are making small steps and eventually we'll get to the right place I think.”
Connecting traffic is going to wither. Long haul out of the US to India, although good volumes, is expensive
“One of the things that happened to Indian aviation as a result of which international carriers, such a Jet Airways and Air India have really struggled, is that there's a lot of overbuild capacity, I would say, all around India. It stretches all the way from Dubai, Doha, Singapore, Bangkok. All these carriers are overbuilt in their capacity, rely a lot on connecting traffic and a large part of that flow is from India. Now, as a result, they can support a lot of widebodies into India."
“Now, we obviously operate narrowbodies and our narrowbody costs are very low, but widebody costs obviously are almost at the same level of narrowbody costs. Therefore, that has been a problem for us, but these widebodies rely heavily on connecting traffic. The connecting traffic I believe is going to wither as we go forward. A good example is India to U.S. traffic. Now, India to U.S. traffic is very rich and I have experimented with this numerous times. In United, we fly Chicago-Delhi. When I was at Air Canada, we flew Toronto-Delhi and so on."
“The problem with those long-haul out of U.S. to India, although good in volumes, is that it's very expensive, mostly because of fuel. When you're going all that long-haul, you're carrying a lot of weight, your fuel burden is high, and you would hope that you'd be able to offset it with the use. The customer says, 'No. I don't need to pay higher. I'd rather [change] planes in Dubai or Frankfurt, get a break, have a cup of coffee and get back on the flight again'. That I think is changing. If you look at what's happening, you have American announcing a Seattle to Bangalore."
“That's an odd flight from the West Coast of Seattle there's nothing beyond. Bangalore is not a great hub. It's a great city. It looks like a very point-to-point strategy. United followed up with the San Francisco to Bangalore, Hyderabad I think. Again, a very point-to-point flight. These flights, I believe will work because the volume is there and they will work at the expense of the traffic. The traffic that they will garner currently used to connect via Dubai or Frankfurt."
“I think they're going to siphon off that, which means there'll be less widebodies from these hubs, these close hubs, meaning Dubai, Doha, Singapore, Thailand into India, which I think works to our benefit because if they fuel widebodies from Dubai for example, then our narrowbodies to Dubai should do better. This siphoning of one stop over these hubs into long-haul non-stops doesn't affect us directly because we don't fly to U.S. anyway. Indirectly, it helps our narrowbody local traffic.”
We are looking at alliances. We don’t just look at economic numbers, but at a cultural fit
“We are looking at alliances. We were not part of IATA. We joined IATA about 12 months ago. Part of that is to get into BSPs and other IATA forums in order to do alliances. Yes, we are talking to a number of partners. Eventually we will do alliances. As you know, at United, we were very strong on alliances and as a student of military history, you never go to war alone. You always build alliances. The British are a great example. I don't think they've fought a single war on their own. We will build alliances in time."
“You have frequent divorces if that's what's necessary, but at the same time, I'll tell you, I was at United when we built Star. Obviously it was like, 'Okay. We need a European partner. We need a South American partner'. It was always this issue of, economically who makes the most sense? United and British would have made a lot of sense. United and LAN Chile would have made a lot of sense. Then we were just as cognizant of the cultural fit. Part of Star's great success in the initial years compared to both oneworld and Delta's programme, was that the cultural fit was very, very strong."
“It's like, 'Wait, is this a finance-driven company or is it an operations-driven company?' It's basic things like that. I think us and British could never have worked together. I think American and British works great together because they both have the same philosophy. Conversely, us and Lufthansa were a great fit. I think we don't just look at the economic numbers. We also look at cultural fit from a long-term relationship standpoint.”
We were losing a lot of pilots to other regions, which constrained growth, but now our training has caught up, so we are in a comfortable position to evolve
“Pilots were a constraint to our growth. Well, about two years ago, we were not only short of pilots. We were also losing pilots because many Indian pilots are you know get great offers from the Middle East and Singapore and places like that. It has been an issue. Fortunately, as we go through this process, we really ramped up our training. We were training I think I'm at about four times the rate we were before. A lot of capacity put in place and training really ramped up. Now we've stopped the bleeding issues."
“We used to lose about 10 pilots a month, which was very painful and now we don't. We stopped the bleeding, our training has caught up nicely, so I think that we are in a comfortable position to evolve.”