‘We keep our cost down and stick to the rule book’

As low-cost airline IndiGo gets ready to list on the stock market, its President Aditya Ghosh explains that following the rule book has been the secret of the airline’s success since 2005 when first it took to the skies. Edited excerpts from an interview:

We fly to 33 destinations in the country; there are about 65-odd destinations where an Airbus A320 can land. We would love to be in more cities but we just do not have enough aeroplanes.

Even with 250 aircraft?

Give us a few years to evaluate our opportunities to get to all of those cities.

Is that the plan?

Today we have another 33 destinations which can take the A320.

What is the time line?

A lot depends on what happens on the routes that we are already in.

Can you explain?

There are three buckets of routes in India. There is metro to metro, metro to non-metro and non-metro to non-metro. We have a large presence in all three. We have close to 40 per cent in top 10 metro to metro routes and 39 per cent in top 10 metro to non-metro routes. Interestingly, in the top 10 non-metro to non-metro routes, IndiGo has a 53 per cent market share.

IndiGo is the largest operator by far….. all the airlines put together are less than what IndiGo is on top 10 non-metro to non-metro routes.

While in some ways what you hear from IndiGo is plain boring because it is the consistency of executing the model.

The model being…

A pure low-cost carrier that takes advantage of this large demography. We have picked a business model which is successful in any part of the world. You cannot name a country or a region in the world where a low-cost carrier is not a significant player, if not the most successful one. This is irrespective of how large or small the country is, how rich or poor the country is. So it is no surprise that what is happening in India is only a reflection of the fundamentals of the airline business which play out in any other part of the world.

We have picked a certain format which is this two-hour average stage length and we want to be the very best in the world in that. We are neither into long haul nor in the T-20 part of the game. What we are doing is not inconsistent with [what] some of the successful airlines in the world [do]. At IndiGo, we are sticking to what the book tells you to do – stick to one type of aircraft and create efficiency.

How do you do that in a market where 40 per cent of your costs are determined by fuel, and you are in a pond where everyone is also present?

Whoever swims the fastest, whoever is the most efficient and whoever has the least amount of fat on the body will win the race. We are the lowest cost producers in India. As long as you are the lowest cost producer, especially in the airline business you are a winner.

We have grown our market share. For fiscal 2015 our market share was 33.8 per cent. We are only nine years old and for seven years in a row we have been profitable.

How much does technology help in lowering your costs?

Today we are thinking about what our business is going to be 10-12 years from now. We had the foresight in 2005 to realise that this country is going to need a lot of aircraft and we put our money where our mouth was and back then we took advantage of the growth we could see over the next 10 years. We played with that growth.

In 2010, the NEO (New Engine Option) was announced. We had been working with the manufacturers to see how we could maintain the same consistency and yet bring down the cost structure. In the NEOs, it is the engines that fundamentally bring down your cost.

But for the NEO, the premium is a lot more per aircraft vis-à-vis a Classic Engine Option (CEO) 320?

If I comment it will reveal our aircraft price. Fair to say as a launch customer we may get certain advantages. Net, we strive to fundamentally bring our cost structure down.

Given that you will be paying a premium up front on your initial cost how will you work out an advantage with Airbus?

Obviously I will dance around this question. The overall cost structure starts coming down as you burn less fuel. We have the lowest cost structure in India and we strive to bring it down further.

You have to go off the starting block first. It is a fact that we were the launch customers of the NEO with 180 aircraft in January 2011. We took about nine months to carry our first one million passengers. Today IndiGo carries close to 2.5 million passengers a month. We carried approximately 24 million passengers in FY15 even with our current fleet size.

Increase in capacity means greater connectivity, economies of scale and with the NEO coming in, we will go from all CEOs to NEOs and our cost structure may come down further.

The simplicity of the model is what drives its efficiency. I am not saying we are doing rocket science. But in the same market during the same period, in the same circumstances and same opportunities you cannot name another airline with one type of aircraft, or another airline which is consistently profitable or another airline which believes in the opportunity in India and orders aircraft.

Air India also saw growth and ordered a huge number of aircraft but look where it is?

Adding capacity is not going to get you success. It is keeping your cost down which is going to. All those who started around the same time never stuck to the basics.

Somebody introduced a business class, somebody introduced two or three different types of aeroplanes, somebody said no we are going ultra luxury, somebody else said we are going to go to 70 different cities at the same time. And somebody else said we want to go international.

Somebody has to ask why not stick to what makes some of the best airlines in the world successful.