These differences could not have cropped up at a worse time. As Jet Airways’ fate rests on a wing and a prayer, and opens up space and infrastructure in the Indian aviation market, Indigo has to decide where it wants to go.
IndiGo's promoters Rahul Bhatia and Rakesh Gangwal don’t see eye to eye on certain things. That’s the consensus. But there are conflicting reports on what these are: some reports cite management control and the shareholder agreement for the promoter spat, while others say it has nothing to do with management roles.
Be that as it may, these differences could not have cropped up at a worse time. As Jet Airways’ fate rests on a wing and a prayer, and opens up space and infrastructure in the Indian aviation market, IndiGo has to decide where it wants to go. For instance, does it want to hike its market share in the domestic market or does it want to focus more on grabbing international market share? If it chooses the latter, that leads to more questions: should the low cost carrier model be abandoned for international medium and long haul flights? Should it enter into code-sharing alliances with hub carriers in West Asia?
There are no easy answers here.
On the one hand, the space left by Jet – which halted operations a month ago – means that domestic capacity addition should be considerably slower in the current financial year. That mean’s IndiGo's yields (and other carriers’ too) would increase. This rise in yields could be as much as 5 percent, according to UBS estimates, and would sustain in the near term. IndiGo has an order book of 530 aircraft; delivery for 359 aircraft is pending.
So, it would seem to make sense for the airline to be aggressive in the domestic market. But a market share exceeding 50 percent would expose it to the scrutiny of the competition regulator. Too aggressive a stance in adding capacity could also be counterproductive in driving down yields which are finally showing a pick-up. Moreover, as Paarth Gala of Prabhudas Lilladher puts it, "IndiGo is likely operating on its most profitable routes in the country. It is safe to say that any incremental capacity deployed domestically shall be either less profitable or making an outright loss."
On the other hand, international operations aren’t that easy either although IndiGo has aviation industry veterans who have had successful stints at full service carries earlier. Last week, in an interview to Bloomberg, CEO Ronojoy Dutta said the airline aims to introduce one-stop trips further into Europe (beyond Istanbul, currently) within six months. But longer range flights require a change in mindset and Dutta himself points to possible product redesigns from snacks to business class seats. It could also expose Indigo to hurtful competition from other international carriers and upset its business model. Remember that IndiGo's very foundation has been a best-in-industry low cost model built on efficient operations, route optimisation and a focused management. An alternative could be code-sharing alliances, but that’s a strategic decision the management would have to make.
Is the rift already showing in IndiGo's operations?
An analysis by Ameya Joshi of NetworkThoughts shows that IndiGo missed its guidance on available seat kilometers (ASK) for the March quarter and did not add enough flights to take advantage of Jet's absence.
In the final analysis, a promoter rift is a headwind of IndiGo's own making. However, if it doesn’t end soon, and amicably, IndiGo would let slip an opportunity when the Indian aviation market is at an inflexion point. It will be bad news for passengers and shareholders too.On the way to meet their lawyers, Bhatia and Gangwal could perhaps reflect on what Alfred Tennyson wrote: It is the little rift within the lute, that by-and-by will make the music mute, and ever widening, slowly silence all.
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