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Business News/ Companies / IndiGo delivers on ‘sleep with your wife’ pitch ahead of IPO
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IndiGo delivers on ‘sleep with your wife’ pitch ahead of IPO

The new campaign by IndiGo aims to lure business travellers with same-day return flights

Such targeted marketing and an ability to deliver on its on-time promises have helped build IndiGo into the largest airline in the country in less than a decade. Photo: Ramesh Pathania/MintPremium
Such targeted marketing and an ability to deliver on its on-time promises have helped build IndiGo into the largest airline in the country in less than a decade. Photo: Ramesh Pathania/Mint

New Delhi: A towering billboard along New Delhi’s airport road reads: “Sleep With Your Wife." Another proclaims: “Late Is a Four-Letter Word." They’re campaigns by IndiGo, an Indian budget carrier luring business travellers with same-day return flights.

Such targeted marketing and an ability to deliver on its on-time promises have helped build IndiGo into the largest airline in the country in less than a decade. In a market where rivals have lost $10 billion in the past six years, IndiGo has lowered costs by ordering hundreds of aircraft at once and eschewing add-ons such as free meals, becoming one of only two local carriers to make money in the last fiscal year.

Now, as the company founded by former US Airways chief executive officer Rakesh Gangwal and former travel agent Rahul Bhatia prepares for an initial public offering (IPO) by the end of the year, it intends to expand beyond the 33 domestic and five international cities it currently serves. Seeking $500 million, the IPO would value IndiGo at $4 billion, six-and-a-half times the market value of its nearest competitor, Jet Airways India Ltd, and 18 times that of SpiceJet Ltd.

“They are a very well-run airline," said Tony Tyler, Montreal-based director general of the International Air Transport Association (Iata), a trade organization of which IndiGo isn’t a member. “They have done some very good deals in aircraft purchases, which have kept their costs down."

‘Favourable terms’

IndiGo obtained “favourable terms" by placing bulk orders with Airbus Group SE, IndiGo said in documents filed with India’s securities regulator. The airline purchased 100 A320 planes and outstanding orders for 180 more. Last October, it sought to buy 250 A320neo single-aisle planes in what could be Airbus’s largest aircraft order. While terms have expired, discussions are ongoing, according to IndiGo. Airlines typically order planes far in advance to meet future needs.

IndiGo has more than doubled routes in the past five years, increasing departures almost four-fold to 623 a day, according to the documents. The airline probably had a profit of $150 million to $175 million in the fiscal year ending 31 March, the Capa Centre for Aviation estimated. Go Airlines India Pvt. Ltd was the only other profitable carrier in the period, Capa India said.

IndiGo’s domestic market share will probably exceed 40% in the current fiscal year, up from 32% in 2014, the highest among Indian carriers, Capa forecasts.

“What sets apart IndiGo is its deep understanding of their target customer and a simple service offering," said Amber Dubey, New Delhi-based India head for aerospace at KPMG. “They would neither offer rock-bottom fares nor lounges and freebies. They simply promised to take you to your destination on time in clean, brand-new aircraft."

Losses forecast

Globally, the airline industry is expected to post $25 billion in profits this year, but profitability hasn’t been great recently. Airlines earned $4 per passenger journey in 2013—about enough to buy a sandwich, according to the Iata.

In India, airlines are forecast to lose as much as $750 million in the current fiscal year, Capa estimates.

Indian fuel prices are 150% higher than other parts of the world, according to Iata’s Tyler. Taxes make fuel costs more than half an airline’s expenses.

That, plus regulations, poor infrastructure, a shortage of pilots and relatively few Indians who can afford airfares, will limit the expansion of IndiGo and other carriers, said Robert Mann, head of aviation consultancy R.W. Mann and Co. in New York.

“I think it is the Indian aviation market itself, and equally fast-growing foreign low-fare competition" that will restrict growth, Mann said by e-mail.

Half price

Currently, a one-way IndiGo flight from New Delhi to Singapore departing 20 August costs 11,595 on Makemytrip.com. A Singapore Airlines ticket on the same day, same route costs more than double: 23,302.

IndiGo has been innovative in cutting expenses. It uses Delhi’s cheaper-to-park terminal, and ramps—reading “Every supermodel’s favourite ramp"—to the tarmac, rather than more-expensive airbridges. IndiGo’s onboard-shopping magazine, Hello 6E—a play on the word “sexy" from its registration code—urges passengers to clean their seats and use kiosk check-in rather than staffed counters.

The carrier also sells its planes to leasing companies in order to lease them back, which keeps a younger fleet that consumes less fuel.

IndiGo co-founder Gangwal’s cost-cutting experience at US Airways has “helped IndiGo keep its head above water," said Mark D. Martin, founder of Dubai-based Martin Consulting.

Gangwal couldn’t be reached, nor was Bhatia made available by InterGlobe Aviation Ltd., the parent of IndiGo and the entity that will sell shares.

Investors may be wary of airline stocks. Warren Buffett said he swore them off after making a $358 million “mistake" in US Airways before Gangwal’s time. Six of the 10 airline IPOs in Asia in the past five years are trading below sale prices.

IndiGo is betting on India’s high growth potential to hook investors. A US traveller takes 1.8 flights a year, while people from China and India make 0.2 and 0.1 flights a year, respectively, Airbus said in its annual aircraft outlook.

“They are very good at marketing themselves," said Iata’s Tyler. “They are providing what the customer wants at the price he wants to pay, and they are reaping the rewards." Bloomberg

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Published: 30 Jul 2015, 09:23 AM IST
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