As IndiGo completes 20 years of operations today, Mint is republishing this interview with founder and managing director Rahul Bhatia, originally published on 31 July, on the airline's evolution and roadmap for global expansion.
Two decades in the sky, IndiGo has firmly cemented its position as India’s dominant domestic airline, commanding over 65% of the market share. However, even as the carrier continues flying high, founder and managing director Rahul Bhatia remains deeply focused on its next phase of evolution.
To turn its domestic fortress into a global airline, Bhatia compares the required execution discipline to climbing Mount Everest. "Executing to the plan is key," Bhatia said in an interview to Mint. Bhatia also reflected on the foundational strategies behind IndiGo’s success and outlined his vision for taking on global carriers in the decade ahead.
Edited excerpts:
Over the last 20 years, what were two or three things which you believe really helped you stay on course as the most disciplined low-cost airline, even as many went bust?
I really think the cornerstone of our success was our fetish about maintaining and improving our cost leadership. If you don't have the right cost, you're never going to make it work—because, as we all know, Indian customers are so price-sensitive that they will move from one airline to another for ₹50. The key learning also has been to keep discipline. Discipline of execution. Don't stray from that.
Were there any missteps?
If we were to rewrite IndiGo, it would probably not be very much different from where we are today.
How do you look at the next 10 years?
So, 20 years have gone into building essentially a domestic airline with some tentacles into the near region. The journey with IndiGo has never been about size. It's all been about execution. Size is a by-product of it. I think the next stage of evolution has to be that we can carry Indians from here, through a hub or hubs, to the world — and bring the Indian diaspora from around the world back to India. That's been a market that, for whatever reason, we initially allocated to the Europeans, then to the Southeast Asian carriers, and, more recently, to the Gulf carriers. That's economic wealth we need to bring back to the country — not only IndiGo, but Indian carriers generally have that responsibility. I think that's really our next phase of evolution. I truly believe that Indians flying out of India and returning to India should fly with Indian carriers. They must fly Indian carriers. I think that's the mission companies like Air India and IndiGo have on their hands, and we need to make that happen.
How do you respond to the question of market dominance with an over 60% share?
Of that 65% market share, one-third of it is flying into markets where nobody else is flying. That one-third represents, give or take, 250 city pairs where no other airline flies. It's not that nobody is allowed—everybody's welcome. But we are doing our duty as a good corporate citizen to our own country by connecting cities that have never been connected before, and there's a massive list of them. And then there's another list of cities where none of the national carriers flies. One-third of our production is to unique markets. In the markets that we actually compete in, our share is not 66%, it's only 44%. So, while the world seemingly begrudges us for our scale, what they don't appreciate is what we do to bring the hinterland in—integrating it into the mainland. On the question of the Competition Commission of India, the CCI should look at this number from a competitive standpoint. But are they going to hold it against us for connecting unique markets that nobody else is flying to? You can't hold us guilty for other people not flying the route.
For 20 years, IndiGo has been focused purely on the low-cost carrier model. IndiGo is now changing — there's IndiGo Stretch, there's the widebody aircraft you're looking at, there's your loyalty programme. Quite a few things are different now. How do you look at IndiGo over the next five to ten years?
So, loyalty is something which will become a self-sustaining programme. It will earn its own money. The airline will not support it; it will support it on an arm's length basis, and any inventory exchanged will be sold at market prices. But BluChip will eventually become a standalone business that stands on its own feet, and I think we are very confident we will get there. Just because you are adding some complexity to your model does not mean you're straying away from the low-cost mentality. So, when we mutate the model, you still have to maintain cost leadership. If we bring in a stretch programme, the stretch product itself has to have cost leadership; and if it does, hopefully, you'll find customers. The same is true with the widebodies. As we bring them in, it'll be a three-cabin aircraft. And we are fairly confident, based on the results we have seen over the last two years since we've been flying some widebodies into Europe—the results are quite encouraging. We really believe that once we start getting our own planes and putting our partnerships with other airlines together, this will earn its own dinner.
On the loyalty programme—any tentative timelines by when you believe it can become a standalone business by itself?
I would think it will be sooner rather than later—Well before five years.
Will your low-costs model change as the carrier adds more long-distance international routes?
I think the core of the company will always remain what you've experienced with IndiGo in India over the last 20 years—a single-class, low-cost structure which flies India and the region. When it comes to the international product, I would like to think it will be more of a hybrid rather than a full-service offering. In the cabin that you are competing in, you have to make sure that in that cabin, you have cost leadership. Let me give you a different example. Say you go to a five-star hotel and a three-star hotel. A three-star hotel will not have all the frills that a five-star has—but for basics like the mattress on the bed, you have to make sure your mattress is as good as the one at the five-star hotel, because the customer needs to sleep well. But then you have to make sure you can secure that mattress at a price better than the competition. It's no different for us. For every new market segment we want to play in, we need to absolutely make sure we have the right cost. Otherwise, it simply doesn't work.
Would you look at partnerships with the Middle Eastern carriers as part of scaling up international plans?
We'll certainly look at partnerships. We will certainly have a partner in the United States, no question. We'll have partners in Europe. We'll have partners in Asia. In Australia, we already have a partner. In Asia, we work with JAL. The Europe and UK thing is up for grabs right now—we'll see where it goes.
On the approach of owning planes compared to an asset-light business?
Having planes on our books is simply so that we improve our cost structure, as opposed to having operating leases. If you have finance leases, you're improving your cost structure. And secondly, once we have planes on our books, we will end up keeping them on our books for a longer period of time, and we want to be in control of the maintenance of those planes ourselves. A finance lease for an airline is clearly cheaper than an operating lease. And if you ask me why we did not start this journey earlier, it's only because the initial years were all about building cash in the business to fortify ourselves. Now, with the cash reserves we have, we believe it's time to start slowly and in a very thoughtful manner, transitioning from operating leases to finance leases.
On businesses under Interglobe Enterprises? (Interglobe Enterprises is the promoter company of Interglobe Aviation Ltd)
We have a portfolio of businesses we are involved in—hospitality, technology. All of that keeps moving. We have a joint venture with UPS, which is in the parcel business. We have a joint venture with CAE for flight simulators. So, we constantly keep looking at opportunities.
Would you look at listing any of these businesses once they reach scale?
I think the first business that will probably get there would be the hospitality business, which we expect to take to the markets. I would say a maximum of two years.
What is your vision for that business?
We want it to be one of the leading hospitality firms in India.
And would this be at the budget end, or the whole slew?
It's the whole slew of Accor's portfolio, from Raffles down to Ibis. There are 75 operating hotels in Accor India and South Asia, spanning Luxury to Economy brands. 12 are scheduled to open this year with the ambition of having 300 hotels by 2030.
Would you look at diversifying into other countries? Would you look at setting up hotels or acquiring hotels?
We have a small portfolio of hotels overseas. I think we own about 13 or 14 overseas assets. Will we do more? We launched a new brand a year and a half ago, and it seems to be catching traction. Would we do more? We'll make that decision over time.
The other question is about your air taxis. You've taken two bets. Do you see that scaling up?
That whole programme is waiting for certification from the FAA. It's taking longer than we had thought. Let's see where it goes. We want to keep a close eye on it and see how it develops, rather than not looking at it at all. But it's early days. Let's see how it all pans out.
As an airline promoter, every now and then there are surprises and challenges—like the recent one in December, the Flight Duty and Time Limitations (FDTL) rules. How do you control it? Did you foresee such a thing happening? How do you prevent it? Are there lessons you took after that event?
Everybody thinks the December event was solely because of FDTL, and I think that's somewhat a misplaced view. I think several other elements came together, and it was like a perfect storm that basically destabilized the operation. There was a software upgrade over the weekend before—the entire fleet had to be upgraded. I think volcanic ash was coming from somewhere. Cyclones in Chennai. So, there were three or four things that all came together and brought this on. It was an event we did not wish for. It happened; you learn from it, move on, and make sure it doesn't happen again.
On the appointment of new CEO Willie Walsh. What are some of the traits you look at CEOs and why no Indian as a CEO?
Well, Willie is operationally very strong; so, we clearly want him to bring that to bear at the company and look at what we can do to continue to improve our resilience as an operation. Two, given his own history with Aer Lingus, British Airways, and then IAG—as we expand our footprint internationally by establishing partnerships with other airlines, I think he will bring immense value. So, I'd say those are probably the two fundamental ones. Aviation in India, even though it's been around for some years now, is still in its nascent stage of evolution. As it matures, you'll have a lot of homegrown talent who can run this. And I'll tell you—I'd be the first. There'd be nobody happier than me to have IndiGo run by an Indian CEO. Are we there today? No. Will we get there tomorrow? Absolutely, yes.
On the recent report of your son Madhav joining.
So, we have always been a string of businesses that have had a very soft touch in terms of shareholders. These businesses have all been professionally run. Madhav's journey right now is just that he's getting exposed to the different businesses we are involved in. He still has a long way to go, and we'll see how it all develops.
On the challenges before the Tatas to turn around Air India
Well, integrating three or four airlines together is unprecedented. So I sympathize with what he (Tata Sons and Air India Chair N Chandrasekaran) says, and eventually they'll get it together, but it's going to take some time. And don't underestimate the challenge—and I say this not to him but to the rest of the world. Don't underestimate the challenge they have on their hands in bringing three, four, or five companies together with different cultures and technology bases, and making it work.
What keeps you awake at night?
Executing to the plan. I remember a couple of years ago, we were somewhere, and the gentleman who heads our network planning had a presentation on the network today versus the network in 2030. While we all have an intellectual appreciation of what that could mean, when you see it on a screen, you understand how much of a task it's going to be. So, to keep true to that execution and get there—it's like climbing Mount Everest. We just need to be razor-focused on making sure we are executing to the plan.
On the road ahead. Wouldn't you like to de-risk yourself by venturing into completely different segments, where opportunities present themselves?
I wish we had the DNA to do that. Human beings tend to stay closer to their comfort zone. But in this space, we are constantly looking for opportunities to be involved. Given where IndiGo is today and where we think it's going over the next 10 years, I think we need to keep our heads down and execute to plan in a very disciplined manner. Because if we don't, you can actually get distracted.
Investors have given Interglobe Aviation a thumbs-up despite one of the co-founders selling shares, and the market cap is now over ₹2 trillion?
In fact, one manager of a sovereign wealth fund, who manages their India portfolio, told me IndiGo was the only stock where he went wrong, because he always wanted to wait until after Rakesh (Gangwal) had diluted and then pick it up, since he thought it was an overhang. But he was proved wrong, because Rakesh kept selling and the stock kept rising.
Are you in touch with Mr Rakesh Gangwal?
Haven't seen him or spoken to him in many years. Unfortunate, but such is life.