Airline Weekly - March 21, 2016
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Airline Weekly - March 21, 2016

India’s Nine-Year-Old Prodigy: IndiGo is already its nation’s largest domestic airline… and its most profitable

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India’s Nine-Year-Old Prodigy: IndiGo is already its nation’s largest domestic airline… and its most profitable

Talk about child prodigies. It’s not even 10 years old, and IndiGo is already the largest domestic airline in the world’s second most populous country, commanding roughly a third of the entire market. Oh yeah, and it makes money too, and has throughout its meteoric rise. How did this obscure youngster from Delhi rise so far, so fast?

In August 2006, IndiGo began life with a helpful head start. Unlike many startup airlines that wind up in trouble, it enjoyed access to plentiful capital thanks to the deep pockets of a founding shareholder, a successful Indian IT and travel conglomerate called InterGlobe Enterprises. As a result, IndiGo was able to place—more than a year before even launching—a giant order with Airbus for 100 A320s.

IndiGo was also different from other startups in that another founding shareholder, Rakesh Gangwal, brought years of experience at the highest levels of the global airline industry. A protégé of former United and US Airways chief Steven Wolf, Gangwal himself held senior positions at United and Air France, before succeeding Wolf at the helm of US Airways from 1998 to 2001 (before resigning under difficult post-9/11 circumstances). He later ran the global distribution company Worldspan, a forerunner of today’s Travelport, where he worked closely with Delta most notably.

Just as importantly, Gangwal, while at US Airways, made that airline a giant Airbus customer by ordering 400 A320-family planes, along with 30 A330 widebodies. This proved a monumental transaction for Airbus in its rise to challenge Boeing, particularly in the U.S. So when Gangwal, teamed with the established InterGlobe group, called again in the mid-2000s, Airbus was prepared to do for IndiGo what airplane manufacturers rarely due for unproven startups: offer steep discounts in exchange for a giant order. IndiGo, in turn, was a rare startup that could place a giant order on good terms thanks to its capital and credibility.

Less than 10 years later, IndiGo has fulfilled its promise, taking delivery of all 100 of the A320s it ordered and helping Airbus become India’s largest airplane supplier. At no time did IndiGo ever ask to defer deliveries—on the contrary, it has asked at times for planes to be delivered earlier than scheduled.

IndiGo’s 2005 A320 order was indeed a critical factor in its success, ensuring a decade-long competitive cost advantage versus rivals paying more for their planes. In this sense, it bears resemblance to... (418 of 1,673 words)

Also Inside this Issue:

There are few industries more interesting and colorful than the airline industry. But it’s an industry that’s also subject to occasional tragedies. This weekend, 62 people lost their lives when a Flydubai jet crashed while landing in Rostov, a city in Russia. Investigations are now underway.

Just as dispiriting was the loss of lives in another terrorist attack in Turkey. The escalating violence threatens not just lives but livelihoods as the critical tourism and aviation sectors feel the fallout.

Lufthansa is no stranger to such pain. The year 2015 was “emotionally by far the most challenging one in the 60-year history of the Lufthansa Group,” its CEO proclaimed. He was referring to the Germanwings crash a year ago. But he separately described Lufthansa’s many business challenges in 2015, none more pressing than its labor struggles.

Uncompetitive labor costs remain the signature dilemma at Lufthansa, with a pilot deal still elusive. To address the matter, and ultimately to make profit margins more sustainable, the airline will lean heavily on its low-cost unit Eurowings.

Air France/KLM is similarly relying on its low-cost operation for salvation, if not quite to the same degree—unlike Eurowings, Transavia doesn’t fly longhaul. Also like Lufthansa, Air France/ KLM is hoping to wring cost savings from fleet renewal, in its case ordering a few more A350s last week while canceling its remaining A380 orders.

Air France/KLM’s partner Delta announced a new route: Los Angeles-Beijing. And Cathay Pacific shared more worrisome revenue trends.

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