2 Things You Must Know About Indigo Airlines Monopoly In Indian Aviation

Hello everyone in the last ten years, the indian aviation industry has been one of the most difficult to conduct business in. India has witnessed the demise of heavyweights like as kingfisher jet, sahara air, and even the renowned deccan air.

Even while other airlines struggled to earn a profit, indigo remained phenomenally successful for ten straight years till 2018, and a ticker dip comparison shows that in 2015, whilst also jet airways continued to be a dominant competitor, jet generated a massive negative of 2097 crores.

Spice jet made a loss of rs. 687 crores. Indigo was well up with the a profit over 300 crores, and it is still far ahead of the its competitors today.

Indigo Airlines Monopoly

When it comes to india’s continuous domestic market share, spiced has 11.7 %, air india has 10.2 percent, and goer has 8.8 percent.

Whereas indigo was well behind with the a 52.7 market share, which was greater than the combined market share of the following five competitors. The question is, given that indian aviation is such a difficult business to operate in along with massive machines like jet airways.

Air india and decanade how did indigo come to have such a monopoly? More importantly, how had this firm been successful for ten years in a row?

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The coat of louis pasteur might be used to summarize indigo’s tremendous expansion. Back in 2005, he remarked that opportunity favours the prepared mind, and I told you about it.

When indigo first entered the market, the indian aviation field was controlled by companies like as jet airways, deccan air, and air india. This is when kingfisher and indigo began.

Kingfisher Airlines

However, if you check at the expansion of these firms after 2005, you will see something quite interesting: until 2007, all of these companies was functioning with loss commensurate to their size.

While kingfisher experienced a loss worth of 408 cr, spice experienced a loss of 132 cr, jet suffered an loss of 423 crores, and indigo suffered an loss of 234 cr.

However, something strange happened after 2008, and kingfisher’s losses increased fourfold to 1900 crores, while spiegel’s losses increased fourfold to 340 crores.

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Jets’ loss remained basically consistent at 400 crores, but indigo managed to earn a profit at 82 crudes, which surprised kingfisher.

As planes began to break, indigo profit increased by 400 – 484.7 crores, and from then on, indigo market share increased dramatically, eventually converting into a monopoly with in indian aviation industry.

Now the issue is, how did these massive players suddenly collapse? Furthermore, how did a young firm like indigo become a monopoly?

That is because indigo avoids the mistakes made by such airlines while also deploying some game-changing business techniques that would permanently redefine the indian aviation industry.

Let us try to learn the 3 basic facts of indian aviation.

3 Basic Facts Of Indian Aviation

1. Despite the fact that the airline sector is a very capital-intensive industry requiring 1,000s of crores of investment, the cost of air travel in india already is prohibitively expensive for most people.

So, if you intend to remain with in indian aviation market, you can’t charge more than rs.5000 – 6000.

If you need a good number of consumers, the cost filter is the only item that most people care about. Even though the flight is at 2 a.M., if it is rs.1,000 cheaper, people will choose to sacrifice their sleep instead of pay more.

2. Despite having and over four times that population of the usa in 2017, india’s flying market is still in its infancy.

Although india’s air traffic was only 161.5 billion, the america was well ahead at 632 million. Finally, even if your rates are reasonable, it is extremely difficult to make a profit in india.

Why? Since the most expensive aspect in your income statement is utterly out of control, and that is the gasoline expense, which accounts for 35 to 45 percent, if not more, of your operating costs.

This price fluctuates in response to geopolitical events. So, the only way to make money with in indian aviation industry is to increase your margins without raising the price of your tickets.

Indigo had been an absolute genius at it. In its first year of business, indigo astonished the whole industry by buying 100 aircash from airbus in such a single deal.

On the surface, this purchase appeared to be one of the largest aircraft deals ever aviation industry, with an order value of $6 billion.

It may appear crazy, but it was brilliant deal made at a critical time, and mr. Rakesh gangwan, the co-founder of indigo, took that bold move for three reasons.

3 Bold Move In Indigo Airlines

1. In 2005, airbus nearly entirely lost the indian market, and indian corporations began purchasing from boeing. This was due to the fact that airbus aircraft faced severe reliability issues.

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This includes major air crashes during 1988, 1990, and 1992, but after resolving all of these issues and safety issues, airbus were determined to return to the indian market, and this occurred during the period when indigo made such a large order of 100 aircrafts.

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According to data from the orders by southwest airlines & ryanair, airbus was willing to offer aircraft at a dirt low price by default.

The discount might have been as much as 50%. Second, airbus planes were much more efficient as boeing aircraft, and last, indigo adopted a mechanism known as sails and lease back, which significantly lowered its operating costs.

And here is the how this model works: the airline purchases the aircraft from manufacturer, sells it to another party, but then rents it back to the same buyer. Let’s look at an example to see how this works.

When indigo placed an order on 100 aircrafts, it receives a tremendous discount, allowing it to purchase a hundred millions of dollars aircraft for a small price to 50 million dollars, that it then sells to a leasing firm like bosco aviation at 55 million dollars.

They generate a profit of $5 million, therefore following the sale, indigo hires the very same aircraft to boc aviation for just a period of between five and eight years, paying the rent because of its incoming operating revenue.

Now, this is a terrific bargain for boc since aviation receives the 100 million aircraft for 55 million dollars. Even without danger of placing a big order, they are also acquiring a prepared client base that will provide them with ongoing revenue.

If you look at it for indigo, it’s a fantastic bargain since it offers indigo three terrific advantages over its rivals. First and foremost, the firm generates an advance profit of $5 million, which can be utilized for cash flow, allowing indigo to remain cash wealthy while other competitors suffer during times of crisis.

2. Under sales & leaseback arrangement, indigo indicated that not all of the aircrafts would arrive at the same time, but rather over a period of 6 to 8 weeks, allowing them to slowly accommodate additional flights as planned.

Furthermore, any technical glitches or faults with engines were to be handled by either airbus or even the engine provider in this manner.

Indigo was not required to pay its maintenance personnel. In addition, it did not need to pay for airplane upkeep, and indigo could easily utilize many more air vehicles with far less money than the competition.

The interesting truth is that kingfisher employed the identical leads and sales back approach as airbus. Even yet, kingfisher flopped horribly whereas indigo prospered at the same time in the same market.

Why did that happen is the question?

That is due to a basic reason. Customers enjoy living king size, but they don’t like spending king size to inform you about it, kingfisher and jet airlines.

Both of these airlines intended to provide their clients with a king-sized existence, so they provided in-flight food and an in-flight entertainment system.

While indigo chose to abolish all of these amenities and provide consumers with only what was really necessary for flying, that was a seat and a small amount of legroom.

Why? Both food & entertainment require equipment that necessitates more fuel to transport and run, hence raising the cost. Limiting productivity and complicated the process since that would need extra maintenance, and kingfisher chose to decrease transit time the so-called point-to-point paradigm of operation.

Whereas indigo chose a style of operation known as the hub and spoke, and here is how these models worked out: suppose we had six destinations.

The a, b, c, d, e, n, and f if you had to offer a flight linking all of these locations using a point-to-wide paradigm, you would require a flight between a and b, b and c, c to d, d to e, and e to f.

Then you’d have to connect a to c, a to d, a to e, and so forth and so forth, thus 15 planes would be required to connect all six locations using hub & spoke model.

Instead of linking all of these locations with individual flights, you establish a hub o between these six places such that.

If you wish to link a to c, there will be a plane a that will transport all of the people who want to travel to b, c, d, e, and f, then when flight a lands at the hub.

The passengers will board their individual flights, which are numbered b, c, d, e, and f. F and even those planes then will return to their respective places on the map.

Outside, this may appear complicated, but you know who these folks are.

The hub & spoke model has four significant advantages. Number one, you need only six planes in the this form as opposed to 15 planes with in point-to-point approach.

Second, by employing the hub & spoke concept, the aircraft are kept more engaged. Because you are now serving the same amount of consumers but with just six flights. Third, because of the presence of a central hub, maintenance is incredibly simple.

It is quite simple to expand your network; simply add another spoke just adding another aircraft to the network, and you will be able to connect all six destinations with additional point.

If you want to add more destination to a point-to-point model, you’ll need another six planes, so the hub & spoke model is the one that will connect people from anyplace to everywhere. Because of the usage of a point-to-point model, this is the most efficient method in this scenario.

While kingfisher had a market share on 19.99 with 66 aircraft, indigo had nearly the same with 17.6. However, this was able to provide them with only 38 aircraft, which is why.

Why were kingfisher &  jet airways unable to make a profit while delivering luxury and convenience?

Contrast indigo, although originally in difficulty, began swiftly developing without bleeding funds. This lasted from 2006 to 2008, but then come the most dreadful moment for indian aviation as oil costs began to skyrocket.

Oil prices surged from 76 dollars per barrel in july 2007 to 132 dollars a barrel in august 2008.

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When this occurred, every single airline began to lose money, which is why, from 2007 onwards, airline loss reached absurd heights. For example, kingfisher jumped from 498 to 1900 crores of loss.

Indigo moved from a deficit of 132 cr to a profit of 82 cr when every other airline is losing money.

Indigo’s operational costs are minimal, and they were able to effectively cycle their capital, resulting in a profit.

When every other company was bleeding, indigo earned record profit levels over the following ten years and is now a leading company with such a share of the market of further than 54%.

In addition to its operating practices, while kingfisher was suffering, indigo took advantage of the situation by directly poaching kingfisher pilots. This happened because kingfisher was unable to pay its pilots owing to its loss.

Indigo’s cash reserves made it possible for the pilots to fly.

According to accounts, between 200 and 300 pilots left indigo in under 6 months after receiving a bonus nearly equal to their upcoming pay at kingfisher.

That’s how indigo saved on great deal of money on pilot training and onboarding and grew even more lucrative in the future years, just as they did not make the error of purchasing jet or jet airways with insecure leadership.

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While it claimed that jet airways had been sold and acquired several times, it did not even employ a full-time ceo over 15 months, but mr. Aditya ghos… Headed indigo for ten long years from to 2018.

The ultimate outcome of all of these strategies is just as remarkable as it can be: from 2012 13 to 1617, indigo’s average spending on establishment costs was just 11.01 percent of total operating costs.

So although spicejet goer as well as jet airways started spending 17.9 11.2 and 5% respectively, india also had one of the lowest employee numbers per aircraft inside the sector in 2011 whilst also jet required near to 180 staff members per aircraft, kingfisher required 110, spy jet required 120, and indigo required only 96 employees for every aircraft.

Air india need 250 personnel in 2012, and indigo has been exceptional in terms of customer service and hospitality, with the lowest completion percentages & cancelation rates in the business.

This is why, beginning in 2012, when kingfisher closed up shop, indigo began making record amounts of profits, and by 2015, indigo had achieved record levels of profit.

Although jet had a significant loss of 2097 crores, spicejet had a loss of 687 crores, while indigo had a gain of 1,300 crores.

Although jet attempted a comeback, it failed by 2019, but indigo persisted and currently holds market share of even more than 50 percent.

Has a 100% monopoly on 194 routes with in Indian Aviation Space

Indigo finally stayed profitable for 10 straight years on its 531 routes, which is truly amazing in an industry.

This is the ionic narrative of indigo airlines, which is considered a minor airline cemetery.

Moving forwards, there are three critical lessons we must take from indigo.

1. If you are the business of serving the ordinary man in india, keep in mind that people are always eager to live king size. However, not everyone pays king size, so consider twice before overindulging your consumers.

And, as vital as it is to deliver the finest quality service to humanity, keep in mind that no matter how good your work is, if you have no cash flow, you cannot maintain in the market.

In the instance of jet airways & kingfisher, we discovered that although good companies learn from their failures, great brands benefit from their competitors’ mistakes.

While indigo learnt that cost of flamboyance through kingfisher & jet airways, it also learned through deccanair and that there is difference among cheap and affordable since deccan frequently screwed up with scheduling & customer service in order to keep prices down.

Similarly, indigo learnt the hub and spoke concept, as well as sails and leads back  from american european classics such as ryanair and southwest airline to last but not least

Most significantly, as louis pasteur once remarked, “Chance favors the prepared mind,” and in this instance, it was indigo’s ultra-low operating costs.

The business’s capital reserves aided it in turning it tables as soon even as 2008 crisis occurred, transforming indigo from a fledgling company to the a monopoly with in indian aviation industry.

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