The IndiGo strategy

There is surely a lot of noise around Indian aviation. The loudest being: the Tata group doubling down on its investments in the aviation sector. First, it formalises its bid for ailing Air India and then increases its stake to 84% in budget airline AirAsia India from the 51% it held earlier. It still isn’t clear what the Tata group’s larger strategy is with regards to its aviation bets.

Presently, its control of AirAsia India and Vistara gives it access to just 13% of the overall domestic air passenger traffic. That just about equals the market share of SpiceJet, India’s second biggest airline by passengers carried. And if the Tata group goes on to win the bid for Air India, then they stand to gain a relatively sizeable 10% market share. But they still won’t be anywhere near that of IndiGo’s.

India’s largest airline—by a number of parameters—IndiGo, enjoys a whopping 55% share of the domestic passenger traffic as of November. And it continues to bet big on the burgeoning Indian middle-class. “We are really on a mission and I take that word very seriously—its not an aspiration, goal or nice dream, its a mission,” says Ronojoy Dutta, chief executive officer and whole time director of InterGlobe Aviation, which owns and operates IndiGo, while speaking to Fortune India in late November. “We are on the mission to build the best airline system in the world. We think we owe it to India.” (InterGlobe Aviation ranks 48 in the Fortune India 500 list).

Dutta's full interview, where he talks at length about the micro, macro and other aspects of Indian aviation can be read in the January 2021 issue of Fortune India, which would be on stands soon.

So how would “this best airline system” in the world look like? Not very much different to what has already been created, but just doubling down on its core business model. It would have “very, very affordable fares” to begin with. “We know that we aren’t a rich country, we might be getting richer slowly, but we need to make air travel affordable for vast masses of people,” says 68-year-old Dutta. The second key element he says is connectivity. “Just as we have a mission, we also have a purpose: to drive growth ourselves by providing connectivity.” And for that the airline is making huge investments in acquiring aircraft and more fuel efficient engines.

In June last year, IndiGo announced that it has ordered CFM International LEAP-1A engines to power the remaining 280 Airbus 320neo and Airbus 321neo aircraft that it has on order. The contract, which includes spare engines and an overhaul support agreement, is valued at more than $20 billion, at list price. Then, four months later, it placed a firm order for 300 A320neo family aircraft, marking one of Airbus’ largest aircraft orders with a single airline operator. The order was worth a staggering $33 billion. “Huge investments to make sure that we have a great airline system with lots, and lots of connectivity, both domestically and to the neighbouring countries,” says Dutta.

Another element to Dutta’s “best airline” mission is providing convenience. “We probably won’t have a non-stop flight service from say Bhubaneswar to Jaipur, but we want to give customers lots of options: A 7 am connect via New Delhi, 9 am via Mumbai or say 11 am via Hyderabad,” he shares as an example. The strategy is about strengthening routes to hub airports and ensuring tier-II connectivity and beyond comes with a plethora of timings and schedules.

Then there’s the actual product, which he says needs to be relevant to the airline’s philosophy of offering low-fares. “To come up with a Kingfisher Airlines product—give you champagne and there will be valet service to carry your bags—is not relevant in this marketplace at all. Our product is designed for what do people want and what they can afford at low prices,” he emphatically says. Simply put: it’s the unbundling of ticket prices to let passengers choose what they want to spend on. For example, a seat, meal service, or extra baggage. “Design your own product and pay for it as you go,” adds Dutta.

Given IndiGo’s dogged focus on budget air travel, it would be interesting to see how the Tata group approaches the aviation market. While AirAsia India competes head-on with IndiGo, Vistara is a full-service airline and so is Air India. The latter is the only airline to offer passengers 25 kg of free check-in luggage in domestic travel, which calls for another story altogether.