Daybreak - Indigo's the winner of the skies and the stock market. But it's still walking on eggshells

Episode Date: January 8, 2025

At the end of 2024, Indigo, India’s largest airline, was voted as the airline of the year by Centre for Aviation (CAPA) at the 2024 Global Aviation Awards for Excellence. And then just a couple of weeks later, the airline was in for a rude shock when a survey by a German consumer-rights group ranked it among the worst 10 airlines in the world. Indigo, of course, refuted the findings of the survey and cast doubts on the credibility of the agency that released it.Monthly data from aviation regulator DGCA had scored Indigo high on punctuality and low on customer-complaint ratios, and it was a big deal “for an airline of its size and scale of operations”.But you see, that is exactly where the problem lies—size and scale.Tune in!Daybreak is produced from the newsroom of The Ken, India’s first subscriber-only business news platform. Subscribe for more exclusive, deeply-reported, and analytical business stories.Correction: In the episode, the host said SpiceJet is not listed. That is factually incorrect. The error is regretted. 

Hi, this is Rohan Dharma Kumar. If you've heard any of the Ken's podcasts, you've probably heard me, my interruptions, my analogies, and my contrarian takes on most topics. And you might rightly be wondering why am I interrupting this episode too? It's for a special announcement. For the last few months, I and Sita Ramon Ganeshan, my colleague and the Ken's deputy editor, have been working on an ambitious new podcast. It's called Intermission.

We want to tell the secret sauce stories of India's greatest companies. Stories of how they were born, how they fought to survive, how they build their organizations and culture, how they manage to innovate and thrive over decades, and most importantly, how they're poised today. To do that, Sita and I have been reading books, poring over reports, going through financial statements, digging up archives, and talking to dozens of people. And if that wasn't enough, we also decided to throw in video into the mix. Yes, you heard that right. Intermission has also had to find its footing in the world of multi-camera shoots in professional studios, laborious editing, and extensive post-production.

Sita and I are still reeling from the intensity of our first studio recording. Intermission launches on March 23rd. To get an alert as soon as we release our first episode, please follow intermission on Spotify and Apple Podcasts or subscribe to the Ken's YouTube channel. You can find all of the links at the ken.com slash I am. With that, back to your episode. Hey, daybreak listeners, happy new year. I'm Rahel, the co-host of this podcast.

2024 was a big year for daybreak. But first and foremost, we kept our promise. Four days a week, we brought you one interesting business story to get your day started. Each episode was short, simple and most importantly, insightful. We also went ahead and switched things up this year. Once a week, every Friday, we dropped a special original episode. We call these episodes TFEs or The Friday episode. Unlike our usual crisp episodes, our TFEs are usually longer and feature very interesting guests.

There are also no constraints on the kind of topics we choose. So we've ended up asking and answering a wide range of questions. From why China is at the forefront of the global EV race to why more and more women are freezing their eggs. There is something for everyone. As we enter 2025, we are only going to push the envelope further. So keep listening to Daybreak. And while you're here, please could you rate our podcast on your preferred streaming platform?

It'll only take a few seconds and it will really help this podcast grow. With that, let's get on with the episode. At the end of last year, 2024, which, by the way, still feels very weird to say, to me at least, Indigo, India's largest airline, was voted as the airline of the year by the Centre of Aviation or Kappa at the 2024 Global Aviation Awards for Excellence. It also won a few other awards and accolades. And then, just a couple of weeks later, the airline received news that must have come as quite a shock. A survey led by a German consumer rights group ranked Indigo among the worst 10 airlines in the world. Indigo, of course, refuted the findings of the survey and cast doubts on the credibility of the agency that released it.

It also pointed to monthly data from the aviation regulator here in India, the DGCA that showed its scoring high on punctuality and low on consumer complaint ratios for, and I'm quoting, an airline of foreign. its size and scale of operations. Now, it is most probably this very size and scale that kind of explains the disconnect between what Indigo thinks about its own services and what its flyers feel about it. But there are some things that you have to give it to the airline, no matter what side you're on based on your experience. The airline owns 60% of the market share here in India and it carried over 100 million passengers in 2023 alone.

It does have a role in making flying more affordable and accessible to Indians. But like my colleague Anand Kalyan Rahman wrote in his newsletter, Long and short, Indigo has become a victim of its own success. This winner's curse like Anand calls it is showing not just in customer complaints, but also in the airline's financial performance. Welcome to Daybreak, a business podcast, from the Ken. I'm your host, Nick Das Sharma, and I don't chase the news cycle. Instead, every day of the week, my colleague, Rahal Philipose and I will come to you with one business story that is worth understanding and worth your time. Today is Thursday, the 9th of January. You know, despite flying nearly two out of every three flyers in one of the largest and most fastest growing aviation markets in the world, Indigo posted a loss of close to 1,000 crores. in the recent September quarter of 2024.

After all, looks like size can hurt. I'll explain. But again, when Indigo refuted its ranking, we have to note that it did have a point. DGCA data shows that in October 24, the airline's cancellation rate of less than 1% was much lower than that of Spicejet and Vistara. It was only very, very slightly higher than every. India. Its number of complaints per 10,000 passengers was at 0.2. Again, much lower than Air India's 0.6 and Akasa airs 0.5. And that is not all. Indigo's on-time performance at four

metro airports was better than that of all its competition. But here's the thing. In absolute terms, a far greater number of flyers were hurt by Indigo's cancellations and delays. Nearly 24,000 passengers were affected by the airline's cancellations in October and close to 1 lakh flyers were stranded by flight delays longer than 2 hours. This is far worse than the travails inflicted on passengers by any of its rivals, including its closest competitors, Air India and Vistara. Similar patterns were also noted in the months before October. alternative flights, refunds and the likes, which are mandated by the regulator anyway,

do not quite satisfy a passenger once they're disgruntled. A bad experience is still a bad experience. So it is probably this that was taken into account in Indigo's poor customer satisfaction scores by the German firm-led survey. More passengers, more complaints, more the chances of becoming a lightning rod. So solving this will require more efficient processes and a concerted attempt at improving customer satisfaction both before boarding and in-flight. But again, that is easier said than done for an airline of Indigo's size and scale. It flies more than 3 lakh passengers every single day.

This plus its fleet of about 400 aircrafts and counting makes it among the largest airlines in the world. So, like Anand says, making this elephant dance can be a Herculean task. Still, it might be possible and even imperative. From being a pure play low-cost carrier, Indigo is now going hybrid with the recent launch of pricier business seats on some routes. This means it will have to keep a tight leash on cancellations, delays and complaints if it intends to make a dent in Air India's dominance in this space. And actually, a much harder problem seems to be air ticket prices.

And here is what Indigo had to say about its September quarter losses despite growing revenue 15% year on year. And I'm quoting, Indigo, however, reported a net loss of $9.9 billion driven by higher fuel costs and a peak number of groundings which have now started to reduce end quote the numbers you see are telling during the quarter indigo's fuel cost per available seat kilometer which is also known as cask or cask grew by over 4% and its total cask grew by about 12% year on year cask is a unit measure of an airline's cost in contrast indigo's

revenue per available seat kilometer which is a unit measure of a its revenue grew less than 5%. And its yield, which is again a unit measure of passenger ticket revenue, grew over just 2%. Simply put, Indigo was not able to raise its ticket prices and revenue to make up for the increase in its costs. But you might wonder why couldn't an airline that owns more than half of the market in India do that? Precisely because it has to handle more than half of the market. Airline flyers are already feeling the pinch from high ticket costs and any sharp increase will risk a backlash both from passengers and the government.

And as the de facto price settle in India's aviation market, Indigo would again become a lightning rod. Also, the risk of seeding market share to the Air India-Vistara combo is actually quite high right now. And coming to Indigo's problem of grounded aircrafts due to the Pratt & Whitney engine issues and all the associated costs, well, it looks like that problem is here to stay, even though the worst of it may have passed. As of September 2024, there was still over 60 grounded aircrafts. The airline's management expects the number to go down to the mid-40s by the financial year 2026. Still, that is a long way to go. So you see how the winner of India's aviation market is actually working on egg shells.

On the stock market side, though, thankfully for Indigo, things are looking pretty good. The airline's stock seems to be enjoying, though, there is no alternative premium. Because Air India is not listed and it has its own share of troubles with the Vistara integration. Spice Shet is not listed, but one never. knows when it will go down and suffer the fate of the likes of Kingfisher, jet airways and go-air. Akka Sahir, meanwhile, is a small and unlisted company. So, like in the skies, Indigo is a winner on the stock market, despite the odds.

But the fear of the winner's curse is very real, at least for the near future. Daybreak is produced from the newsroom of the Ken, India's first subscriber-focused business news platform. What you're listening to is just a small sample of our subscriber-only offerings. A full subscription unlocks daily long-form feature stories, newsletters and podcast extras. To subscribe, head to the ken.com and click on the red subscribe button on top of the Ken website. Today's episode was hosted by Snigda Sharma and edited by Rajiv Sien.