I don't lose sleep over AirAsia: Aditya Ghosh

Interview with President, IndiGo Airlines

Days after low-cost carrier AirAsia announced it would launch its India operations by the end of the year, IndiGo Airlines President Aditya Ghosh, 38, tells Sudipto Dey in an interaction why his airline is not one that should be worried. He also shares his views on why adding new aircraft capacity, competition, and unbundling of fares will only help keep passenger fares low in India. Edited excerpts:

In 2006, being one of the promising new airlines, you were seen as a challenger. Seven years on, you are a leader (with 29.5 per cent share of the market in May 2013). And, a new aggressive challenger is standing at the gate. Should we expect IndiGo to adopt a defensive strategy from here?
We will continue to play like we have played before. We did not change our plans with giant airlines in our own backyard. Even now, we are not going to change our plans. We will continue to do two things: Chase growth, which is there; and compete against what we were yesterday. I hope we are like Roger Federer — boringly consistent.

So, you are not losing sleep over AirAsia entering the market?
I am embarrassed to say this but I really am not. Sorry for not giving you a dramatic response; I sleep fairly well. That’s because we are building a strong business, because we have a great team and because we are building a long-term sustainable business. If you focus on someone else, you lose focus on what you are trying to do. We are focused on bringing 18 planes over the next 18 months and keep growing from there.

We are flying a fleet of 66 aircraft now and should have 84 by the end of 2014 — that is, addition of an aircraft every month for the next 18 month. Our average fleet age is 2.2 years. So, we are the youngest fleet in the sky. Passengers always get to fly a brand-new plane. From the airline’s point of view, we burn less fuel.

The issue of AirAsia poaching IndiGo pilots caught a lot of attention. Was keeping your flock together part of a defensive play — a bit of a mind game?
I never strategised that. That’s the disadvantage of not going to a business school. We have not got even one resignation yet. But such challenges will always remain. In fact, pilots do not need a new challenger in India — they can fly IndiGo today; Emirates tomorrow, if they wish; or Philippines Airlines the next day; or even Singapore Airlines. The focus for us is that people working with IndiGo should be happy working with IndiGo. I interview each person who joins IndiGo (the headcount at present is around 7,000). One question I ask everyone is, what’s your personal dream? Each day you spend working with IndiGo should bring you a step closer to that dream. We aim to be better today than we were yesterday.

How do you see AirAsia’s entry changing the Indian market?
The new player has a sharp bunch of people. They run a good airline. They will run a sharp business and not do anything silly. They run a successful business everywhere else in the world, keeping the costs low. Those that have kept prices high need to worry.

Many of your peers have taken potshots at your claims of being a “profitable” airline, even as the industry was bleeding. How has 2012-13 been in terms of financial performance?
We will disclose the numbers for last financial year in another 60-odd days. We have come out of a strong year — both in terms of growth and profitability. The dollar will impact us more this year but the objective is to remain profitable this year, too. We broke even for the first time in March 2009. We have been profitable in each year since then.

So, was there margin pressure in FY13... did profitability go down?
Not really. (Passenger) Capacity went down; demand was more than supply. So, profitability margins did not come down.

The players with stable and lower costs should bring in more supply. So, what I’m saying has a two-fold import. First, a motherhood statement, the business has to be run in a way that costs are less than revenue. This makes business sustainable. And, second, from the passengers’ point of view, sustainable business has to bring in more supply, so that fares come down. That is exactly what we are trying to do at IndiGo — build a strong sustainable profitable business and bring in more planes so that we can offer lower fares.

We are entering a phase where we will see unbundling of fares. How does that change the economics of the business?
That is bound to happen, if airlines have to meet costs. So far, Indian passengers were used to paying for buffet lunch. Now, buffet lunches are becoming à la carte menus. If the entire global industry is moving in a direction, India cannot be unique in that respect. Every mature market has gone that way.

Do you expect a major ramp-up in ancillary revenues?
We hope so. Indian airlines’ ancillary revenues are not even a third of what airlines like Ryanair, EasyJet and Spirit Airlines make from ancillary services.

How do you allay passengers’ concerns that they might have to shell out more?
There is nervousness among passengers due to the transition and the flux. Airlines, too, will take a few months to get it right. But passengers would get used to it easily. Indian customers are used to paying differential parking fees, paying more for food and balcony seats inside movie halls, etc. Airlines are no different. People are willing to pay for extra convenience if they see value.

Even today, IndiGo offers something called ‘Fast Forward’ for corporate customers. There’s an extra dedicated line at check-in, where you can zip through after paying a fee for about Rs 200. Customers wanted convenience of paying for excess baggage in advance, so we brought a pre-pay facility. However, we will never charge for a glass of water, or for using the toilet. We should not lose sight of the fact that ancillary revenues will only help bring airfares down. It has happened everywhere in the world; it will happen in India, too.

 

So if not AirAsia, what is it that is taking most of your time?
 

We are doing lot of exciting things on our people front. We have a mission to create an army of leaders at all levels in IndiGo - who can take IndiGo to the next level.
 

Today, I am running a 66-aircraft airline. In another 48-60 months we would be a 100 aircraft airline. The next big thing for me is how will IndiGo remain consistent as it is today at the 100 th  aircraft level. My role is to focus on how to prepare IndiGo for 100-aircraft fleet where we don’t slip on on-time performance, cleanliness, technical dispatch reliability, among other things.

When the passenger walks into an IndiGo aircraft, the senior-most person they meet is the lead flight attendant or the captain of the plane, or a check-in agent. That colleague of mine has to be a leader. 
 

Our investment in our learning academy, I Fly, has gone up 10-fold in the last 48 months. The space dedicated to I Fly has also gone up 10-fold (now at 50,000 sq feet). We have close to 70 coaches and instructors from different background - ground instructors, safety, security, leadership, grooming, pilots, etc. The spirit of IndiGo gets created at I Fly. 

 

AirAsia follows owned-aircraft model while IndiGo has sale, lease, back strategy. How much of a difference in terms of costs does these two models make, presuming for a moment that all other things are same?
 

Sale and lease back is just a financial model. Everything has got an advantage and disadvantage. Our advantage is we get a fresh product with a newer technology, less fuel burn, less carbon footprint, latest safety standard. While for someone who flies an aircraft for many years because it is on their books, it is like driving a M800 that was new in 1985 when you bought it but gets older and older with every passing year, versus someone who brings in a new M800 every year.

I feel customers will continue to choose the product that is the freshest and the newest.  Our strategy helps both the customer side and also the cost side. 

 

IndiGo have been pretty conservative on the international front connecting just five destinations after almost two years of operations.  Why?
 

The international market is massive opportunity in the 4-5 hours range. Since about two years ago when we started the international operation – in the domestic market one airline has completely gone out of business and some others are shrinking or stagnating. So we as a business had to make a choice – should we focus on the international markets we wanted to, or should we focus on the greater opportunity that lies within India. We have no ego in IndiGo. While international looks so much glamourous, but domestic market has grown while capacity has come down and somebody had to fill that gap. That’s why we chased the greater opportunity between international and India.
 

In the international sector we would like to have more flights to the destinations we already fly to – Singapore, Bangkok, Dubai, Muscat, Kathamandu.  We would like to start a flight from Kolkata to Singapore, a second flight from Chennai to Singapore, or a third flight from Delhi to Dubai. Strategy is to have more frequency among city pairs.

That has been our overall strategy. In fact even after seven years   Indigo flies to 28 cities in India. Ranchi – with a flight to Delhi in August – would be the 29th city. Unlike many of our competitors who fly to 60-70 destinations.

 

There has been some shrinkage in the market in the last one year or so in terms of passenger numbers.  What is your sense of the market going forward?
 

This is large and untapped market.  All airlines put together have not been able to tap a small percentage of what the true potential of the market is. We are a country of more than a billion people and less than 400 commercial planes in this country.  A couple of years ago there were 440 planes but now there are 390 planes.  This is counting smaller aircrafts like turbo props or Q400- all sizes of planes.  If you look at markets like Phillipines, Indonesia, Brazil, China, Russia – they have three-four times the aircraft penetration that India has.
 

We are not even talking about matured markets like United States, Western Europe or Australia. This means that the market is so large that we need more airplanes in this country.  Either those airlplanes will come from existing airlines or they will come from new airlines.

 

What do you see as the biggest challenges for IndiGo in the coming years? 
 

As last-kid –off-the-block in 2006, we were up against some large big brands, shortage of pilots, shortage of engineers,  parking bays, air traffic management.  We had airports that were much smaller and constraint than they are today.  Our challenge was to go through that.
 

Today our challenge is different and two-fold. The challenge today is to continue to grow and make the most of the giant opportunity in front of all of us – all airlines and even new ones.  Unless this country has more planes the airfare will continue to be too high, people would be paying more than they should be. 

I keep saying ultimate cost of travel in this country is much higher than what it should be. That is partly due to lack of supply, partly fuel charges, partially airport charges, then you have the Dollar (issue), air traffic management inefficiencies.  All these things come together to make flying more expensive for people.

The other challenge is – what in IndiGo we focus on a lot – our competition is we have to better ourselves every day – may be an inch a day, or a millimetre or even a foot another day. Having gone through the struggle for last seven years we kind of have started enjoying the struggle a little bit (laughs). That is what makes IndiGo what it is.

Every day we try to see what new innovative thing we could do, where is the large opportunity and how we can chase that.

The other bit is when someone new comes in (competition) – they come with ideas, hopefully with innovation. It helps us to learn from someone doing a good job. So I see this (entry of new competitor) very optimistically.  The optimism comes from the fact that there is virtually no demand risk in our business in India. In most matured markets airlines are fighting with each other for market share, taking passengers from each other.

In India passengers are just there.  We just need to provide them planes to fly.  That’s a pretty lucky position to be in – how many businesses are there where there are no demand risk.  

At IndiGo we take a long-term view. Our 280th delivery will happen somewhere around 2023-2025. That’s 10-12 years away. That’s not just a plan, but an signed deal. We have to play for the long term. In my analogy this is like a marathon. You run, then you conserve energy, then u run faster – you don’t sprint from the first mile to the last mile.

 

Delta Airlines founder CE Woolman once said “Running an airline is like having a baby.  Fun to conceive,  but hell to deliver”.  You were involved with IndiGo from conception stage, took deliveries of aircraft and now in an executive role.  So do you agree with this assessment?

Only thing is that I am still having fun.  In fact we just took delivery of our 82th aircraft. I don’t think I have been to as many temples as praying in front of an aircraft and break a coconut with each new aircraft arrival. Personally this has been a phenomenal journey.  There has not been a day when I have not thanked my stars that I have one of the luckiest jobs in the world.  I get to work with a phenomenal team at all levels and get to learn something new every day.  That’s what makes it a really exciting journey.