189 crores in the skies!
Indigo's brilliant strategy!
In an industry where airlines shut shop regularly, Indigo made a profit of INR 189 crores in the last quarter. But what the hell are they doing right?
For context, here are the financials of some other airlines:
Air India: Loss of Rs. 14,000 crores in the last financial year (No numbers available for the last quarter, but only a miracle would probably bring it up to profitably, given the 14,000 crore loss)
Vistara: Became profitable in Dec 2022, but the cumulative yearly loss for FY 2022-23 was Rs. 1,393 crores
Go First: Do we even need to discuss this? It’s mostly going to face liquidation (bankruptcy) soon.
Well, so how did Indigo manage to do a 189 crore profit?
The answer is something very few people take into account - Operational Excellence.
But how did they achieve it?
Let’s look at some of Indigo’s strategies that changed the game.
For starters, the founders of Indigo - Rakesh Gangwal and Rahul Bhatia were veterans in the industry with their own pedigree - Gangwal (an IIT and Wharton alumni) came with decades of Airline experience in the US, and Bhatia knew the Indian travel market, thanks to his father’s business of which he was a part.
This made them the perfect duo to start an airline business.
Standard fleet of aircraft
According to Indigo’s annual report for 2022, 240 out of its 275 aircraft were Airbus aircrafts, with a majority of them being the Airbus A320. No Boeings 737s or 747s or the likes.
And since the beginning, Indigo has maintained limited aircraft models in its fleet.
Now this may seem basic, but here’s how it changes the game.
You see, having a limited range of aircraft models means you can purchase them in bulk, which in turn means lesser cost for procurement (well, bulk discounts work as much for aircraft as they do for anything else).
Secondly, maintaining one or two types of aircraft is operationally much easier than having to maintain 4 or 5 types.
Thirdly, it saves on training costs for the crew. Everyone is trained on the same aircraft type, which means lesser cost of training, replacement or absenteeism.
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Sale & Leaseback model
Some analysts also say that Indigo’s “Sale & Leaseback” model actually helps their numbers.
Well, as the name suggests, “Sale & Leaseback” means you sell the planes to another company and lease it back from them.
Sounds weird, but this also has inherent benefits:
One, Indigo can buy aircraft in bulk (and hence get better deals) and then sell them to other buyers at a profit
And two, the maintenance cost comes down because it doesn’t own the aircraft, but only leases them.
Get the basics right - No frills
Indigo’s positioning for a very long time has been “on-time arrivals”. And think about it - that’s exactly what you’d want as a traveller - to arrive on time.
Their entire strategy and operations are based around the fact that they have no frills - no premium services or fancy aircrafts. Just on-time arrivals. Simple.
Like I said, Indigo’s case study isn’t about genius marketing or innovative products. It’s about operational excellence.
Indigo is a classic example showing that the key to profitability is not about doing the cool and flashy stuff - it’s more about doing the mundane.
Well folks, that’s it for today. Let me know if you liked this piece. Drop an email to me if you did :)
See you soon!