IndiGo’s business model: Key to becoming India’s largest airline

When it comes to the Indian aviation industry, there is a clear leader: IndiGo. The airline owns over half of the Indian market and is showing no signs of stopping. The successful journey of IndiGo began when it became one of the first airlines in India to budget commercial air travel. This approach enabled IndiGo to offer economically-priced tickets and undercut its competitors, allowing more people to fly. In fact, air travellers’ numbers have increased in the previous six years, driving India to third place in the world’s aviation sector. But how did IndiGo become such a strong player? Let us investigate!

India’s commercial passenger aviation industry has faced the toughest time over the last few years. In India, aircraft movements fell from 1.60 million in FY16 to 1.20 million in FY21. Domestic aircraft movement dropped at a CAGR of -6.44 % from FY16 to FY21, while foreign aircraft movement declined at a CAGR of -18.52 %. In the fiscal year 2021, India’s domestic and foreign aircraft movements were 1.62 million and 0.135 million respectively.The average hourly pay in the United States is roughly $23.83, whereas the average flight ticket in 2018 was $346. This indicates that a common American must work 14.5 hours to pay for an average flight ticket.

However, in India, the average domestic flight ticket in 2018 was 3,292INR ($45.74), while the average hourly pay is 42.62INR ($0.59). This indicates that a typical employee must work for 77.5 hours to take an ordinary flight, which is more than five times longer than in the United States. This data shows how tough it is for airlines to be profitable.

While other existing aviation companies have been struggling and breaking their backs to make a profit, IndiGo remained profitable for 10 consecutive years. In 2015, when Jet Airways was a dominating commercial air travel business, it reported a loss of 2097 Cr; Spice witnessed a loss of Rs. 687 Cr and IndiGo made a profit of Rs. 1300 Cr.

Competitors are far behind IndiGo as it covers 52.7% of the market, followed by SpiceJet at 11.7%, Air India at 10.2% and Go Air at 8.8%. It has a greater market share than the combined market share of its top five rivals.

Being a profit-making airline, especially in unfavourable conditions like India, means that IndiGo carefully avoided the mistakes that most commercial airlines in India have made.

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The strategies and model IndiGo is using to script a rare success story

IndiGo business model is built on three pillars of success that have helped the airline maintain its position as a leading low-cost carrier. These pillars are affordable fares, on-time arrivals, and a hassle-free experience. Despite not having a business class like other airlines, many business travellers prefer IndiGo due to its outstanding on-time record. IndiGo’s business model is centred on simplicity, enabling the airline to capitalise on the benefits of being a low-cost carrier. In contrast to Air India, IndiGo does not provide complimentary meals, and it unashamedly charges for all extra services.

The IndiGo business model  emphasis on simplicity is reflected in its approach to pricing. The airline keeps its fares affordable by focusing on providing a no-frills service, which excludes any unnecessary features or services. This approach has proven successful, allowing IndiGo to compete effectively against more established airlines in the Indian market. Moreover, IndiGo’s business model is designed to cater to the needs of budget-conscious travellers who are seeking value for their money.

 

IndiGo  business model also allows the airline to keep its costs low. By avoiding unnecessary expenses and streamlining its operations, IndiGo can offer competitive fares without sacrificing quality or safety. This approach has helped the airline maintain a positive reputation among travellers, as well as investors who recognise the value of a well-run low-cost carrier.

Overall, IndiGo’s business model is centred on simplicity, affordability, and a focus on core services. This approach has proven successful, allowing IndiGo to maintain its position as a top-performing low-cost carrier in the Indian market. By focusing on its core strengths and catering to the needs of budget-conscious travellers, IndiGo continues to grow its market share and strengthen its position in the aviation industry.

Strategies that made IndiGo a consistently profitable airline

• Short-term and point-to-point route structure, a shared fleet with single-class seat arrangement, and high staff productivity.
• The bulk purchasing technique resulted in lower aircraft procurement costs. It secured an order for 300 A320 Airbus aircraft in October 2019, making it one of the largest aircraft deals with a single airline operator.
• Lower maintenance costs as a result of a modern, single-type aircraft strategy have made this a cost-efficient airline.

Sale And Leaseback Model

IndiGo marketing strategy has been critical to the success of its sale-and-leaseback financial model. The majority of IndiGo’s revenue comes from sale-and-leaseback transactions, which have contributed significantly to the airline’s increased profitability. These financial transactions have proven to be a successful marketing strategy for IndiGo, allowing the airline to maintain a healthy balance sheet while also expanding its fleet.

The sale-and-leaseback model allows IndiGo to save on depreciation, increase earnings, and save on taxes, making it a popular business model for low-cost carriers. IndiGo has been the most active user of this financial model among no-frills carriers. This strategy allows IndiGo to keep its balance sheet light and maintain its focus on providing affordable fares, on-time arrivals, and a hassle-free experience.

Furthermore, IndiGo marketing strategy has helped the airline to build strong relationships with leasing companies, allowing it to benefit from the flexibility of the sale-and-leaseback model. The prices paid to aircraft manufacturers such as Boeing or Airbus are typically higher than the prices charged by leasing companies. However, leasing firms are willing to enter into sale-and-leaseback agreements since they receive an asset and a well-established client without having to buy a new aircraft.

IndiGo’s marketing strategy has been successful in promoting the sale-and-leaseback model to potential investors, who recognise the value of a well-run low-cost carrier. These financial transactions have enabled IndiGo to convert losses into profits, with each sale and leaseback contributing $4-5 million in working capital.

 

Overall, IndiGo marketing strategy has played a crucial role in the success of its sale-and-leaseback financial model. By building strong relationships with leasing companies, promoting the benefits of the model to potential investors, and maintaining its focus on providing affordable fares and excellent customer service, IndiGo has been able to maintain its position as a top-performing low-cost carrier in the Indian market

Building financial synergy

IndiGo has preserved a strong financial control system, which aids in the effective management of working capital. It has also implemented appropriate rules and processes to protect company assets, prevent and identify fraud, and prepare trustworthy financial reporting on time.

With all of these activities on display, one would wonder what is preventing other companies from following IndiGo’s lead and reaping the benefits. The harsh reality is that IndiGo has built something unique while not having access to rare resources, copyrights, or patents.

IndiGo has created a distinctiveness with all its efforts, such as operational or financial efficiency initiatives, complementing one another, resulting in a strategic fit.

Clearly defined responsibilities for each ground staff and crew member result in a 20-minute turnaround time, which helps maintain the flight on schedule and improves per-flight utilisation capacity. Furthermore, this alignment of operations cuts costs significantly. Strategic fit is difficult to create, but once accomplished, it is priceless. It becomes difficult for competitors to imitate, generating a firm’s sustained competitive edge.

Determining new opportunities and abilities

IndiGo Airlines strategy has continually performed well, securing its position as a top-performing airline in the sector. To maintain this position amidst competition arising from the consolidation of the market through mergers and acquisitions, IndiGo must remain committed to providing low-cost, outstanding services while also exploring additional diversified channels. Indigo Airlines strategy should focus on entering the air freight industry in India, which is predicted to experience significant growth in the coming years. Reports indicate that India’s air freight volumes grew by 7.5% in the fiscal year 2019 to approximately 3.75 million tonnes. As such, IndiGo can leverage its efficient management talents to enter this sector successfully as part of its overall strategy.

Furthermore, IndiGo Airlines strategy should prioritize the creation of capabilities that align its operations with environmental sustainability goals, aimed at lowering the carbon footprint of its activities in the aviation industry while still maintaining basic safety procedures. To achieve this, IndiGo can explore a range of strategies, including investing in more fuel-efficient aircraft, adopting sustainable aviation fuels, implementing more efficient air traffic management systems, and investing in renewable energy sources.

Overall, IndiGo Airlines strategy must focus on maintaining its position as the most favored airline firm through low-cost, high-quality services, exploring new business avenues such as air freight, and prioritizing environmental sustainability to align its operations with global trends and meet the changing expectations of its customers.

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