Airline Leader Interview IndiGo VP Strategy Neha Narain

Transcript

Jonathan Wober:Welcome to the final session, which I think is going to be a fascinating story. If I can invite Neha Narain of IndiGo Airlines to come and join me. This is a fascinating story. The airline started in 2006, and last year it carried more than 100 million passengers. Please, Neha. Thank you, Richard. In fact, you sit there, I'll come here, make it easier for you.

Neha Narain:Thank you.

Jonathan Wober:How do you get from 0 to 100 million in 18 years? Only— it's a top 10 airline globally in terms of passenger traffic numbers. That's a huge growth story. We're going to try and unpick how IndiGo has managed to get that and what the growth will be going forward. Now, you get that level of growth, very simply, there are 2 factors. Very simply, there's the market opportunity in India, and then there's the business model that you choose to exploit that opportunity. Just taking those 2 things separately, first of all, tell us about the Indian market and what it is that's so different that provides that growth opportunity.

Neha Narain:I think you're absolutely right. It's not that the growth is happening in isolation. It's all a function and a driver of the market that we operate in. Now, one of the unique things about the market, if I were to look at it, one is obviously the sheer size of it. That is something that we're all aware of in terms of— I mean, it's something that has followed the growth of India. India is supposed to be the 3rd largest economy by 2027. It will be a $5 trillion economy right after US and China. That is something that has also translated into the aviation market being the 3rd largest. In terms of the size, I think there is something that we call the demographic dividend, which is in terms of not just the size of population, but also the age of the population. We are a fairly young population, which is an ideal set for an industry like air travel. The average age of the population is around 28 years. Also, in terms of the middle class, It used to be around 30% of the total households in India in 2020 and is expected to be close to 47% in 2030, which means almost like half of the country would be a middle class aspiring to travel. Even in terms of the industrial revolution or the 4th industrial revolution, which we say is the whole digital piece, India happens to be at the hem and at the forefront of it. I think all those factors put us at this stage, which is almost a perfect place to be in, in terms of airline industry growth. However, having said that, in terms of all the size that we talk about, it's still a very, very underpenetrated industry. That is just talking about the potential for growth which is still there to achieve. for airline players like us. If I were to take out simple numbers like domestic seats per capita, in India, it is at 0.1, which for a—

Jonathan Wober:0.1?

Neha Narain:0.1.

Jonathan Wober:Domestic seats per capita?

Neha Narain:That's right. Just to use some other reference points since there are a lot of European airlines in the room, for EU, it's around 0.4, 0.5, which is easily 4 to 5 times. For a country like US, it's like 2.9. I think that's where we are sitting at. That is just in terms of domestic per capita. When I were to look at international, that number is even smaller. Currently, we have like 7% to 8% of Indians who are passport holders. That's the universe, which is the target addressable market for us, but growing obviously.

Jonathan Wober:Before you get into international, there's a huge domestic opportunity. There's this vast opportunity. You are by far the biggest airline in India by passenger numbers and by seats. Why didn't other people take this opportunity in the same way as you did? What is it about your business model that has been so successful compared to others?

Neha Narain:I think when we started, which was like 18 years back, there was this one thing that was realized and understood and very, very well capitalized by the airline business model. That is the whole value-conscious behavior of the Indian consumer. When we talk about this market being underpenetrated, there is a reason for it. Air travel used to be considered as a premium product which was not for the masses. That is something that IndiGo changed and democratized. When we came out with an airline, we said that we'll be focusing on 3 pillars. The first and the foremost was affordability. That is something that has been our core since the beginning. That is something that has enabled a lot of first-time flyers in the country, which was important for a market like ours. That is something that has stayed with us all this while. Even going forward in this next phase of growth that I'm sure we'll be talking about, we very much hope to ride on that. Affordability and at the same time being value-conscious does not mean that you compromise on quality. Even though affordability is something which is very, very important, we have also spoken about customer service as one of our other pillars. On-time performance as one of the third pillars. I think those are all things that we have stayed true to all this while.

Jonathan Wober:You put it very simply, and in a sense, it is very simple, but I'm still struggling as to, given the opportunity, why others didn't do it in the same way. I remember traveling myself in India about 16 or 17 years ago, quite a long time ago now, but it was the early years of IndiGo, and there were others that that were addressing this market. I remember traveling with Kingfisher, which was a perfectly good product, but they're no longer around. Why is it that you've managed to stick with it where others have fallen by the wayside?

Neha Narain:Jonathan, you're right. It's not that the others have not tried. There have been many airlines which have come and gone. I think it's also important to appreciate that just because we've been growing at this pace and the market has been growing at that pace, It's not still such an easy environment to operate in, which is why I think I again come back to the point of being very, very cost-conscious in our business model. There have been players who've entered the market and who've tried to come out with a good product. Kingfisher, Jet, these were all good products, but have not been able to stick it out purely because of— I mean, could be besides other reasons, The focus on cost is something which we believe have given us that edge that is required to sustain and be profitable in this operating environment.

Jonathan Wober:You mentioned profitability. Just looking at this week's statistics on capacity, you have more than 50% of seats in India. There will be seasonal fluctuations, but that's a huge share. You should be massively profitable. You have been profitable. There was some period, I think, leading up to the pandemic. Obviously, we set aside— excuse me, we set aside the pandemic. You're entitled to make a loss during the pandemic, but a year or two leading up to it, there were losses as well. Why aren't you just hugely profitable all the time given that market share?

Neha Narain:I think when we talk of profitability, just before the pandemic, which was, say, 2018, '19, we were profitable, and then the pandemic happened. Post the pandemic, I think in 2022, we recovered back to our previous pandemic levels. That, I would say, was one of the fastest recoveries that any airline would have seen. Before the pandemic, we were at, say, 76 million passengers in 2019, and '22, we were at 78 million passengers. Post that recovery, we again had, for the last so many quarters, we had almost 7 consecutive profitable quarters that we have delivered. However, profitability is not just about cost, it's also about revenue. So when we look at the market and the dynamics, it is still a very, very competitive market. If you look at the average fare levels, they are amongst the lowest in the world.

Jonathan Wober:So it kind of goes hand in hand when it comes to profitability, and which is why it's so important to remain cost Going into the future, 100 million passengers last year, this year, obviously more than 100 million, and then what targets do you have going forward?

Neha Narain:What we've achieved in the last 18 years in terms of reaching this number of 100 million, we've stated publicly that by 2030, we are looking at doubling that number. Whatever has been done in 18 years would now be replicated in the next 6 years. 6 years or so, which in itself is quite a daunting task. It is something that we've taken upon ourselves because we do believe in the market opportunity and the long-term growth story that India has to offer.

Jonathan Wober:In order to address that market, you've got a very large order book. I was looking at the numbers from the CAPA fleet database, 950 aircraft on order.

Neha Narain:That's right.

Jonathan Wober:950 aircraft on order. On order, of which the majority are narrowbodies, Airbus narrowbodies, but you've also got the widebodies, the A350. We'll come back to that in a moment, but that level of— it's 50 a year or something like that, isn't it? Over the next several years. How do you cope with that level operationally, that level of fleet deliveries?

Neha Narain:We've said that for the next multiple years, we'll be taking one aircraft every week, which is almost like 52 every year. However, that is gross additions. It's not net because there's a part of the fleet which also retires. In terms of network deployment, it means that there is a section of that which will get deployed into the network. Yes, operationally, it is something that we have been doing over the last year or so. We've actually been taking close to 50 aircraft per year. That is something which is required to happen if we are to actually embark on this growth journey that we've spoken about. When we say we'll be doubling by the end of this decade, that's double the number of passengers, that's double the number of aircraft, that's double the number of destinations.

Jonathan Wober:At the moment, with those aircraft deliveries, you've got some of those engine issues that many people are suffering from. How is that affecting— I guess that's a near to medium-term issue, but how is that affecting—

Neha Narain:You're right. It's a near to medium-term issue, but at the same time, very unfortunate because there is a large segment That number touched almost mid-70s last quarter, but we believe that's the peak and we are kind of now coming down from that. Now we have late 60s and we have said that by the start of the next financial year, that number will come to mid-40s. We have dealt with it. That has obviously hampered our revenue growth. Cost situation because we've had to go out and taken— we've taken some aircraft on damp lease and wet leases, which obviously comes at a higher cost. Having said that, last year, we maintained our capacity guidance of north of mid-teens by way of a multiple of these initiatives like extending some of our leases, getting some aircraft on damp lease. This year, we've said that we will be maintaining a double-digit, early double-digit capacity Even with the grounding of aircraft? Even with the groundings, we've been maintaining that.

Jonathan Wober:Building on from the last panel, which was on human resources, with 1 aircraft a week, 50 a year plus, there's huge recruitment and training issues.

Neha Narain:That's right. We have an in-house training academy where we do almost 2,200 people getting trained on a daily basis. That's across the board. That number is expected to grow up by 60%. We are planning to take it to 3,500 people getting trained on any given day. That's the magnitude of workforce that we deal with. We currently have a base of around 35,000 employees and another 25,000 which happens to be our subsidiary which does ground handling for us, domestic ground handling. On a large base, this growth, even if you're talking Early double digits kind of numbers. It's massive. It is something which does require a lot of execution focus. I mean, it's easy to do strategy. That's a bit of my role, but yes.

Jonathan Wober:Absolutely. Going into the growth again and the opportunity for international expansion, which you've already embarked upon. Currently, what's the share of domestic to international passengers?

Neha Narain:Currently, we have hit 28% of our ASKs coming from international. Last quarter, we announced 4 international destinations, uh, Jaffna, Mauritius, Langkawi, Penang. And by end of this financial year, we are planning to announce another 3. Okay, so that would take our number of international destinations to 40. On the contrary, we have around 89 domestic destinations. Now, this 28%, we've said that we'll be touching 30% very soon, and that is with the current fleet. When we have the long-range XLRs coming and the widebodies coming, I mean, that number is obviously expected to go higher.

Jonathan Wober:Currently, it's the existing narrowbody fleet that's addressing the international market, but you mentioned XLRs, so obviously that extends the range, and then you've got the widebodies. What's the thinking with bringing in those aircraft and which markets will you be addressing?

Neha Narain:I think it's interesting to know that if we were to look at the current range, which is say 5 to 6 hours from where we are geographically located, it does cover 65% of the world's population. Within 5 to 6 hours of flying time from India, which means that 2/3 of the world is still accessible to us. However, having said that, yes, we do believe that our customers are looking at more mid-haul, long-haul flying. That is why the decision to go into long range. Obviously, we'll be touching more of Western Europe, Far East, those destinations once the long-range planes comes in. With the widebodies, anywhere in the world. Everything is possible as of now as we are in the middle of drafting out our network strategy for the next few years.

Jonathan Wober:Will there be connecting product within that as well?

Neha Narain:Has to be. It can't be a point-to-point. Even now, even though we've been a low-cost carrier, we do have a significant number of our passengers as connecting. That's fairly large compared to some of the other low-cost carriers.

Jonathan Wober:Can you say what the percentage is?

Neha Narain:I would say it's significant and expected to obviously increase once we do more of this long-haul. Currently, it's more domestic to domestic or domestic to international flows because eye-to-eye is something which is a very small part of what we do right now. Going forward, that is also something that we would look at attracting.

Jonathan Wober:There are some questions coming through which I'm going to turn to in just a minute, but I just wanted to— you talked about affordability, one of your big pillars, and that simply means that you're a low-cost carrier. Having said that, you look at the textbook as it used to be on low-cost carriers, you do one thing and you do one thing simply, but you're now doing You're doing domestic, you're doing international, you're going long-haul, you're doing widebodies, you've got a connecting product, you're rolling out a business class product. What am I missing here? Are you in danger of just getting too complicated and adding too much distraction for management?

Neha Narain:I think yesterday on this stage, we had a panel where we addressed exactly this, that all these boundaries between our low-cost, versus a full service are really blurring these days. It's not just us, it's a lot of other carriers which have went down that route and are constantly evaluating and reevaluating these decisions. Like I said, it is something which is tailor-made to the market to suit the needs of the market. How we've stood for one thing for our passengers, and as our passengers are evolving in that journey, We believe that we need to cater to that wider audience. One, because the market is asking for it, and second, because there are limited options right now. Hence, why not? If that is something that we believe we can do and offer to the market just to cater to this audience which has been loyal to us over the last so many years, then yes, that is a step that is a very considered step. When you spoke about business class, there are 45 planes which would be coming by end of next year. We are looking at the 6 top cities within India, which happen to be some of our busiest and corporate more business routes, where we believe that there is proof of concept that already exists in terms of there is purchasing power that exists in those markets.

Jonathan Wober:These are dense routes. You operate high frequencies on those routes?

Neha Narain:We do a lot of frequencies. For example, Delhi to Bombay, there are around 20 in a day, so 20 one-way, which means almost 40. Delhi to Bangalore would be 30. That's like one flight every hour. It's that kind of a high frequency that we have on all these. By end of next year, we'll have almost like 250 departures between these which will be on this business class product.

Jonathan Wober:In a sense, it could be said that you're evolving into the national network carrier, but there is another airline that's got the name Air India that's now coming back on the scene quite strongly. How is that challenge now affecting you?

Neha Narain:Like I said, it's a market which has so much potential. I mean, not just for 2, there's a 3rd airline which is again like a smaller airline coming up. I think these are all welcome changes for the overall market and for the consumer because there is so much of market creation that is happening in India. Just to give an example, recently, last year, we introduced some direct flights to Central Asia, 4 countries, Tbilisi, Baku, Almaty, Tashkent. These were the 4 routes that we started. As per CAPA estimates, in 2 of those routes, the percentage of visitors going has increased by more than 100%. I think that's the pockets that exist that we are looking at from a market creation point of view. When it comes to working with the government, when it comes to working with the regulator, I think the more carriers there are, it's actually good for the ecosystem.

Jonathan Wober:Okay. Maybe come back to the regulation point, but I just want to take some of these questions coming through on Slido. Don't forget, If you haven't already, you can use Slido to put questions to Neha. The first one there, is IndiGo considering a neo aircraft quicker retirement to CEO due to harsh environment issues and new engines impaired repairability?

Neha Narain:Like I said, and we did discuss it and touch upon it, that this neo issue that we've been facing from an engine perspective, it is a short to midterm issue. From a long-term perspective, From a fuel perspective and from a long-term strategy perspective, I think we are looking at more new-gen aircraft. We have converted our fleet to more new-gen, which is to the extent of 80% as we talk now, over the last 7, 8, 9 years. That has been a considered decision and a conscious strategy because that is something that really has helped us on the fuel efficiency side and that does help our sustainability goals also.

Jonathan Wober:Another aircraft question. Common one. Why are IndiGo and other low-cost airlines around the world switching from A320 to bigger A321? I think the answer is in the question. This was one that came up with the JIAN earlier on as well, but why don't you tell them the answer?

Neha Narain:I think when we've switched from the A320s where we had like 180 seats to an A321 where we now have 222 and 232 also in some configuration, we've actually been able to keep the load factors. Surprisingly, I think which again goes back to the market potential and the demand that is there, and that works much better for the unit economics also.

Jonathan Wober:You get the lower unit cost, but you need the demand to support it.

Neha Narain:Yes.

Jonathan Wober:You're not diluting the yield to the same extent as you're lowering the unit cost? I'm asking that as a question. I think that also depends on the routes and where we are flying, but yes, on the dense routes, we've been able to manage What is the impact of the Indian diasporas globally as you look to your global network strategy, or is it more about leisure and business sectors?

Neha Narain:I think the interesting thing is that, and I was hearing some of the other airline CEOs talk about it, that our segment is leisure or VFR or business. I think for IndiGo, it's pretty much across the board. We do have a lot of first-time flyers. We do have a lot of corporate flyers coming onto us. We do have something called as the small and medium enterprises, which are somewhere between a corporate and a leisure flyer. We do cater to all of them across the board. That's the bit with all these different segments. There are different things that you do for different parts of these segments. We are pretty much trying to cater to all these segments at the same time.

Jonathan Wober:How can Asian carriers like IndiGo, Vietjet, and AirAsia make long-haul work while European low-cost carriers can't? North Atlantic is in the room. I'm not sure if they would agree with that, but what's your take on it?

Neha Narain:I think yesterday we heard how Vietjet is doing flatbeds on their business class. For us, we do believe that if there is a right product offered at the right price, there would be a market for it. However, execution is something which would define a lot of that. Hence, to be able to do that, we have been experimenting in parts. We've had this B777 wet lease that we have, 2 planes that we've taken from Turkish Airlines and we deployed on the Mumbai and Delhi to Istanbul kind of routes. Those are experiments that have worked well for us. The current domestic business class product, that is something which is fairly new. We introduced the first flight on 14th November, which is exactly like a week back. Based on some of the early feedback that we've got, it's actually very encouraging. Some of these proofs of concept have given us the confidence to believe that maybe it's the right time to go and try it out.

Jonathan Wober:I can't believe how quickly our time is suddenly running out. You mentioned the government and regulators. To what extent has the government and regulation been helpful and to what extent could it be more helpful because it's currently hindering you?

Neha Narain:I think it's nice to talk about the opportunity and the size and all the growth that's happening. Obviously, it's not without the challenges that come. Infrastructure is something which is playing a lot of catch-up role. We have doubled the number of airports that were there in the country. Today, we have around 150 airports, and they're expected to go up to 220 airports. However, when we talk of infrastructure, it's just not about the number of airports, it's also about capacity. In some of our largest cities, Delhi, Bombay, we were maxing out capacity. The good bit is that the government is extremely supportive. The government has taken notice of that, has been constantly working towards it. There is a second airport which is coming up in Delhi and Mumbai. That is something that how I spoke about the dense routes being the metro-to-metro markets, Now, with these second airports coming up, it actually gives us a lot of permutation combination possibilities among these dense routes also. I think the government has really been very, very supportive, but it's a work in progress. It is something that will take time.

Jonathan Wober:Time is rapidly running out. I wanted to just get some of your own personal thoughts and experience of your— You joined in 2000. When did you join? Remind me. 7 years. You said 7 years when we were talking earlier on. In 7 years, you've gone across the pandemic and you've gone from how many passengers to 100 million in the time that you were there?

Neha Narain:76 million to 100 million.

Jonathan Wober:How has the culture changed in that time?

Neha Narain:I think when I joined, which was a couple of years before the pandemic, I thought I was joining a company which was on a growth trajectory. 2018, we did much better than the previous year. 2019, we again did better. In fact, 2019 was our best year till then. Then the pandemic happened where suddenly your priorities shifted to daily cash management. How do you really manage the finances, contracts, more focus on cost? That's when once you stabilized after the pandemic and when we've now taken on this task of not just doubling but adding a business class, adding freighters, bringing new fleet type, long-range widebodies. I think that's when I've actually realized what growth trajectory looks like because suddenly that curve has become steeper. Not just steeper, it's become more complicated like you said. There are a lot of these different animals coming together.

Jonathan Wober:As VP Strategy, you're a very busy person. If you could just pick out one personal highlight of your time with IndiGo, what would that be?

Neha Narain:I think it's like If I joined a low-cost carrier, it's like, you know, there is one new element that we are adding every quarter. It's no longer like this one definition of what a carrier is. It's like working with different models, different airlines all at the same time. I think that's the exciting bit.

Jonathan Wober:Fantastic. It's telling me in a big red screen, time's up. I can't believe how quickly this has gone. I hope you've enjoyed learning some of this story as much as I have. Thank you very much, Neha, for sharing your time with us.

Neha Narain:Thank you.

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