1. ABOUT THE COMPANY
IndiGo, headquartered in Gurugram is India’s largest passenger airline with a market share of 39.7% as of January, 2018. It was set up in early 2006 by Rahul Bhatia of InterGlobe Enterprises and Rakesh Gangwal, a United States based NRI.InterGlobe holds 51.12% stake in IndiGo and 48% is held by Gangwal’s company Caelum Investments.
They primarily operate in India’s domestic air travel market as a low-cost carrier with focus on their three pillars – offering low fares, being on-time and delivering a courteous and hassle-free experience. IndiGo has become synonymous with being on-time.
Since their inception in August 2006, they have grown from a carrier with one plane to a fleet of 156 aircraft today. A uniform fleet for each type of operation, high operational reliability and an award-winning service makes them one of the most reliable airlines in the world. They currently operate flights connecting 50 destinations – 42 domestic and 8 international.
2013-14: IndiGo was the second fastest growing lost-cost carrier in Asia after the Indonesian Airline – Lion Air. However, IndiGo had already announced that it plans on seeking permission from the ministry to acquire four more aircraft, therefore actually taking the delivery of nine aircraft in 2013. In August 2013, the Centre for Asia Pacific Aviation ranked IndiGo among the top 10 low-cost carriers in the world.
2015-16: IndiGo placed an order of 250 Airbus A320 Neo Aircraft worth $27 billion, making it the largest single order ever placed in the history of Airbus. Indigo announced an initial public offering of Rs. 3200 crores on October 19, 2015 which opened on October 27, 2015. According to the submission to DGCA, IndiGo with a 33.8% share of domestic passenger traffic in the year ended March 31 reported a net margin of 9.4%
2016-17: Indigo awarded for outstanding performance and profitability by CAPA India, Mumbai. IndiGoReach has been recognised amongst the top 100 most impactful CSR program by the World CSR Congress, Mumbai. It was recognized as ‘Great Place to Work for in India’ for 8 years in a row (2008- 2016)
2017-18: IndiGo celebrated its 11th anniversary with special fares. Indigo was ranked the second-Best Budget Airline by SmartTravelAsia.com. It was named as Aon’s Best Employer for the year 2016 and 2017.
IndiGo announced the appointment of Rajagopalan Raghavan as the senior Vice-President and Wolfgang Prock-Schauer as the Chief Operating Officer.
1.2 MISSION STATEMENT
“IndiGo is a very quality conscious airline and passenger safety is paramount to our company’s mission and values”
1.3 MARKET SHARE
2. ABOUT THE INDUSTRY
The Director-General and CEO of International Air Transport Association (IATA) – Tony Tyler, had stated that the global world is focussing on Indian aviation, starting from manufacturers, airlines, businessmen, tourism boards, global businesses to individual shippers and travellers. According to Mr. Tyler, a bright future can be expected if there is a common goal among all stakeholders in India’s aviation sector.
2.1 Market Size
India’s domestic air traffic nearly doubled to 117 million passengers in 2017 with 100 flights taking off every hour compared to 67 in 2011, as per the data released by aviation regulator Directorate General of Civil Aviation. India’s airlines flew 117.18 million passengers in 2017 compared to 59.87 million in 2011. They also noticed that there was an 18% growth over the 99.88 million passengers who flew in 2016.
India is the 9th largest civil aviation market in the world, In FY17, domestic passenger traffic witnessed a growth rate of 21.5 per cent. In FY17, airports in India witnessed a domestic passenger traffic of about 100 million people. Investments worth US$ 6 billion are expected in the country’s airport sector in 5 years. India’s civil aviation market is set to become the world’s 3rd largest by 2020 and expected to be the largest by 2030.
As of December 2017, the existing fleet of aircraft stands at 548 aircraft in India, and another 920 aircrafts are expected to be inducted into the fleet by 2025.
Some major changes:
• Domestic passenger traffic expanded at a CAGR of 11.46 per cent over FY06–17
• According to Directorate General of Civil Aviation, domestic passenger traffic witnessed growth at a rate of 22 per cent, in comparison 21.24 per cent in FY16.
• International passenger traffic registered growth at a CAGR of 8.33 per cent over FY06-17.
• During February 2017, domestic airlines carried over 8.23 million passengers, showing a growth of more than 23 per cent compared to the same period last year.
• During FY17, domestic passenger traffic increased by 22 per cent in comparison with growth rate of 21.24 per cent in FY16.During FY16, international passenger traffic increased by 7.72 per cent.
Notes: FY – Indian Financial Year (April – March), CAGR – Compound Annual Growth Rate
2.2 Factors Contributing to the Growth of Aviation Sector
From an under-managed and over-regulated sector, the aviation industry in India has now changed to a more open, liberal and investment friendly sector. The civil aviation sector in India has moved into a new era of expansion. Some key factors contributing to this are:
• Increased tourist inflow
• Modern airports
• Supporting government policies
• Higher household incomes
• Entry of low cost carriers (LCC)
• Cutting edge information technology (IT) interventions
• Strong economic growth
• Increased FDI inflows in domestic airlines
• Surging cargo movement
• Focus on regional connectivity
• Sustained business growth
2.3 Some Major Threats to the Airline Industry
There are many threats faced by the aviation industry. The global economy creates a great impact on travelling for leisure and business. A downturn in the global economy means that less people are likely to travel for pleasure and to do business. This leads to fall in income of the airline during this period. To minimize this effect, the organization should devise a mechanism of reducing its operation cost to the minimum level possible to prevent losses due to its operating costs exceeding income.
Some government legislations can also be a major threat to the investors in aviation industry. Government interventions can come with some rules which are very costly to adhere to.
Air travel is very vulnerable to changes in the environment. Heavy storms affect flight schedules, and this means refunding those customers who opt to cancel their flights instead of waiting. It can also lead to loss of the asset, for example, crashing of an aircraft. To minimize the effect of this loss, the airline should make sure that it is well insured against losses resulting from these changes in the weather. There should also be an insurance cover for the passengers of the airline.
Air travel has a seasonal demand especially where a large percentage of travellers involves the ones travelling for leisure. In this case, the highest demand is likely to arise during international holidays like the Christmas season and a significant decrease in demand would be faced in the middle of the year. To ensure that there is no significant drop in customers during the off-peak seasons, the organization can come up with methods to encourage people and motivate them to travel during this period by lowering the travel rates, offering discounts and some special travelling packages.
In recent times, air travel has been a target to terrorists, and this has had a very negative impact on the airlines themselves. Frequent travellers have been scared, and the airline industry has lost a number of customers. To gain back the confidence that they’ve lost, an organization should carry out an extensive campaign solely meant to assure customers of their safety when travelling using their airline.
With the increasing number of airlines and aircrafts, it is highly likely that the shortage of airports and airport facilities will come up. The airline should therefore, invest in its own airports and ensure that they have enough parking bays for its aircrafts.
The organization also face the threat of being attacked by its major competitors. It should therefore, passively work on counteracting these so that it does not fall prey to the accusations made by other airlines.
The greatest hurdle faced by many airlines today is high fuel prices. A huge upward surge in fuel prices can destabilize an investment in the aviation industry. To counter this, the airline should ensure that it has its own fuel reserves so as to reduce the affect caused by the changes in fuel prices as it will have time to adjust while relying on its fuel reserves.
2.4 Road Ahead
India’s aviation industry is largely untapped with huge opportunities for growth, taking in consideration that air transport is still expensive for majority of the country’s population, of which nearly 40 per cent is the upwardly middle class.
The industry stakeholders should engage and collaborate with policy makers to implement efficient and rational decisions that would boost India’s civil aviation industry. With the right policies and undivided focus on quality, cost and interest of passengers, India would be well placed to achieve its vision of becoming the third-largest aviation market by 2020.
In the coming 20 years, Indian companies will buy 2,100 new planes worth US$ 290 billion. Also, domestic air traffic in India is expected to cross 150 million in FY19, on the back of unprecedented capacity induction by airlines*.
Exchange Rate Used: INR 1 = US$ 0.0155 as of January 4, 2018.
Note: *According to Centre for Asia Pacific Aviation (CAPA)