India is a hard place for airlines to make money given high costs, price sensitive customers and vicious fare wars. Kingfisher Airlines which was India’s second largest airline shut shop in 2012 owing $2.5B to stakeholders. SpiceJet temporarily suspended flights last December after it run out of cash. Jet Airways, the oldest and supposedly leading private player, has not been profitable since 2007.
With rivals in the headlines for all the wrong reasons, IndiGo Airlines has proved a bastion of efficiency and growth. Founded less than a decade ago, IndiGo is the not just the only profitable airline in India, it has been profitable since 2009! India’s biggest airline by market share, IndiGo Airlines currently carries one in three of India’s passengers.
The no-frills carrier has a clear positioning – it promises to offer customers:
- “Fares that are always low”:
- Budget airline positioning with consistent, low pricing but no heavy discounts.
- No business or first class offering.
- No lounges, food or extravagant frills in customer service.
- “Flights that are on time”
- The primary differentiator and branding pitch is “on time, every time”, while competitors solely advertise low fares. This makes even business travelers loyal to the brand, in spite of no ‘First Class’.
- As per data released by Flightstats.com, IndiGo is clearly delivering on this promise to customers:
3. “A courteous, hassle free travel experience”
- High level of in-flight and ground service is a key differentiator from other budget airlines.
- Youthful urban cues in branding and advertising with a ‘cool quotient and crossover appeal’.
AN ALIGNED OPERATING MODEL
The budget airline business model is hardly unique – the brilliance of Indigo lies instead in its execution. The company’s operating model directly supports and enables the three elements of the business model, ie Low Fares, Flights on Time and Hassle free experience for the customer.
It is only on the foundation of the 7 key elements of the Operating Model (as below), that the company seems to have pulled off the elusive ‘Budget with Quality’ value proposition:
IndiGo airlines posted a profit of $ 100M over revenue of $720M in the first fiscal quarter of this year. The company’s maiden IPO of ~$ 500M in October was six times oversubscribed and was India’s biggest IPO since 2012. Already on its way to prove Warren Buffet wrong about investing in airlines?
- Asian Brand Strategy (book), by Martin Roll