Five years ago, when most airlines in India were saddled with massive losses because of record high fuel prices, budget carrier IndiGo was one of the few to fly smoothly through the turbulence. Its parent, InterGlobe Aviation, made a profit for 10 straight years and, at one point, the country’s top airline was even in the race for the beleaguered Air India. It eventually opted out.

Many in the industry credit the airline’s phenomenal rise to Aditya Ghosh, its low-key president and CEO who quit abruptly at the end of April after nearly a decade of running the company. Ghosh, who began as the company’s lawyer, went on to become the face of the airline set up by US Airways chief Rakesh Gangwal and travel entrepreneur Rahul Bhatia in 2006.

For years, IndiGo’s success mantra was simple. To provide the lowest fares, the cost structure had to be the lowest in the industry, and it kept costs down by following a multi-pronged strategy. It operated a single type of aircraft, flew in an all-economy configuration to allow for the maximum number of seats in an aircraft, and used the ‘sale and lease-back’ business model for aircraft financing. And it focussed on human resource efficiency and cutting unnecessary costs.

“IndiGo has been successful even when the industry was in trouble due to economic conditions. And this happened because the company had been focussing on cost-efficiency and earning revenues on each seat sold. The carrier’s saleand-lease strategy, its on-time performance and good customer care services helped the airline become the market leader today,” the Centre for Asia Pacific Aviation (CAPA), South Asia, says in a research note.

But, today, IndiGo seems to going through a rough patch. Ghosh’s sudden resignation was followed by a whopping 73% fall in InterGlobe Aviation’s quarterly profit in the three months ended March because of higher expenses and rising fuel costs. Its shares fell as much as 20% the day after it announced its fourth-quarter results. Earlier, the airline had also come under a cloud when the aviation regulator forced it to ground eight aircraft over technical issues with their Pratt & Whitney engines.

And investors are spooked by IndiGo’s troubles. Credit Suisse, Kotak Securities, HSBC, SBI Caps, IDFC Securities, and Morgan Stanley cut their target price for the IndiGo stock after the fourth-quarter results. Analysts are concerned the airline might not be able to keep costs down because it is replacing its tried-and-tested sale and lease-back model for aircraft financing with outright purchase of aircraft instead. The airline’s move to add different kinds of aircraft to its fleet may also push up costs, they fear. Over the years, IndiGo had kept costs down by operating a single type of aircraft to reduce expenditure on maintenance and pilot training. In 2005, Gangwal negotiated a 100-aircraft order with Airbus for the A-320; but today, the airline has already added the turbo-propellor ATR-72 and might also include wide-body planes, such as the Airbus A-330, for long-haul international routes.

After Ghosh’s exit, investors also expressed concern about the company’s management. Industry observers say IndiGo has become top-heavy in the past two-three years, leading to tensions within the airline. Ghosh’s resignation paved the way for Gregory Taylor, an industry veteran with more than 40 years of experience in several global airlines, including United Airlines and US Airways, to take charge of IndiGo. One airline official, who did not want to be identified, says Ghosh’s decisions and power were being undermined by the new hires—mostly expats. “In the last two years, the management has been appointing expats at key positions such as network planning, revenue management, among others,” says another senior IndiGo official. Both Ghosh and co-founder and interim CEO Rahul Bhatia declined to answer queries sent by Fortune India.

Bhatia has denied rumours of a fallout with Ghosh, who wrote to IndiGo employees he was quitting to “get ready for new adventures”. But a day after his exit, observers were left wondering about a cryptic Instagram post by Ghosh: “Knowing when to walk away is wisdom/ Being able to is courage/ Walking away, with your head held high is dignity.”

Ghosh’s plans are still not clear, but what is clear is that IndiGo’s proven strategy for profitable operations over the last 10 years is slowly but surely being overhauled. Analysts are also sceptical about the airline’s ability to keep costs down with its long-haul international plans and the 20 new routes under the government’s regional connectivity scheme, UDAN Phase II, for which it has inducted the ATR-72s. They sought more details on both issues from IndiGo’s management during an investor call after the quarterly results, but the management had little to offer. “We continue to look at the long-haul opportunity without Air India. We continue to seek route rights and necessary approvals as well as looking for wide-bodied aircraft,” was all that Bhatia had to say.

Rising crude oil prices and falling fares because of intense competition in the market added to investor concern about costs. Once again, all the management could offer was assurances that whichever aircraft IndiGo operates, the airline would have the lowest cost structure for that aircraft. “From our perspective, in the Airbus A-320 business, we need to be the lowest cost in that aircraft type. In turbo-prop, we would want to be the lowest-cost structure there. If we go into wide-bodied aircraft then there also we would aim to be the lowest-cost structure. We also have A-321s coming into the fleet this year. So that will help reduce the cost further as they have more seats,” said Rohit Phillip, the chief financial officer.

Analysts are less than convinced. “It is good to see IndiGo expanding its network, but adding capacity on long-haul and tier 2 routes will put pressure on the revenue earned and cost incurred per seat available per kilometre,” says an industry expert who did not want to be identified. “One needs to see how they price the tickets and what services they offer on their long-haul flights. It also depends on the slots they get.” Bhatia sought to calm investors by saying IndiGo was “firmly in control” of its costs. But it might take a lot more to convince them and to successfully navigate the turbulent skies that Indian aviation looks set to face due to rising expenses and competition. One thing is sure: IndiGo’s ride isn’t going to be as smooth as it has been all these years.

(The article was originally published in June 2018 issue of the magazine.)

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