IndiGo, the little airline that plans to Go far
When an unknown Indian airline - at least outside its home market - makes the largest aircraft order in history, something important is happening. IndiGo, India’s leading low-cost airline, didn’t exist five years ago. Today, it still only operates 39 aircraft in the nation’s explosive-growth aviation market and where the formal projection for national annual GDP growth is just under double figures for the next decade.
This article appears in the April edition of Airline Leader, CAPA’s airline management magazine. Go to www.airlineleader.com to download the full edition.
In Jan-2010, IndiGo signed an MoU to acquire 180 A320s. That is roughly one third of the fleet of Southwest Airlines, the US’ largest carrier, all in one bite. It is enough to occupy the entire Airbus production line for six months – although, as Airbus general director Fabrice Bregier noted, this is “spread out over several years, of course”. Meanwhile, EADS president Louis Gallois, in something of an understatement, called it the “deal of the year”. The airline is no stranger to big numbers. At the Paris Airshow in 2005, the previously unannounced IndiGo audaciously declared an order for 100 A320s. About half of these will have been delivered by the end of this year. However, as the dust settles on the order excitement, two important factors emerge.
Aircraft 'deal of the year' wakes sleeping giant
The first is that the longstanding issue of a replacement for the low-cost airlines’ workhorses, the B737 and the A320, is partly resolved. The bulk order establishes IndiGo as the launch customer for the (almost) next generation A320neo, to be a substantially more fuel-efficient successor to the current model. The type constitutes 150 of the total. Deliveries of the neos won’t start until 2016 and are spread right through to 2025.
As a result, the European manufacturer, with this new concept, has managed to establish an edge over Boeing’s competitive B737NGs. It is not the quantum leap in aircraft design that the airline industry was seeking, but it does deliver considerably more than a nominal improvement in efficiency and is probably as much as could be hoped for, where neither major manufacturer can afford to embark on a whole new airframe development programme.
The second and more important point is that the order firmly places the spotlight on the massive growth potential that many airlines – and others – now see in the South and Southeast Asian market. And the potential role that the sleeping elephant of India can play in the way that evolves.
Indian market to reach 450 million pax
Over the 10 years to 2020, CAPA forecasts India’s market will reach 450 million passengers. Over the past decade, passenger numbers handled by Indian airports tripled, from 39 million p/a to 123 million. Based on the CAPA forecast, India will become the third largest aviation market in the world within 10 years, behind the USA and China.
Only two things can prevent this level of expansion: infrastructure and policy inadequacy. India’s aviation policy has, in the past, been extremely effective in shackling innovation in the cause of protectionism, but that has now changed. A well-funded IndiGo is well placed to capitalise on the growth. It is certainly a time for the bold to make their play and capture the lead role. Now, after serving the required prefatory five years of domestic operations, the LCC is about to spread its wings internationally.
It will start with the most popular markets. IndiGo president Aditya Ghosh, in Feb-2011, stated the carrier had secured approval to commence international services to Singapore, Bangkok, Dubai and Muscat from “several” Indian cities. These are well-travelled routes, at least from the prime cities of Mumbai and Delhi, but part of the new wave of LCC operations has been to open up more frequent links to regional airports. The Asian ones – AirAsia (from Kuala Lumpur and Thailand), Tiger and Jetstar (both from Singapore) – have, however, hit headwinds with their introductory services into India, as many new services have been axed for lack of patronage. Meanwhile, Gulf LCCs like AirArabia and flydubai are prospering.
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Indigo has pedigree
Owned by India’s major travel and technology group, InterGlobe Enterprises, and Rakesh Gangwal, a former chief executive of US Airways, IndiGo is India’s third largest domestic airline after Jet Airways and Kingfisher. It is expected to have a fleet of around 75 aircraft by 2016, when the A320neos start to arrive. The new aircraft will partly be used to phase out the earlier models, but on current trends even these fleet numbers may appear inadequate by then.
India domestic market share by carrier: Mar-2011
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One thing is certain: IndiGo will quickly start to attract partner and investor interest as it expands. Powerful Indian domestic coverage is an attractive asset and, for an airline with substantial backing – and lots of synergies through its travel side – there will be many with an interest in getting in at the ground floor. This makes it a useful partner for one of the global alliances too.
Sooner or later, India must also relax its foreign airline ownership rules; when it does, there will be plenty of hopeful investors ready to enter. The usually media-shy Mr Ghosh has talked recently of an IPO for the private company, while maintaining it did not need additional capital for its orders. Also, mindful of the numerous cross-border joint venture operations now permeating the southeast Asian market, IndiGo may well be looking to establish in other countries across the region.
The Indian international market undoubtedly has enormous upside, but it is new and still unpredictable in the short term; it is also typically low yielding in the leisure sector. IndiGo looks to be well equipped to exploit that to the full. And it has the financial backing to make people listen.