Podcast | Aditya Ghosh’s exit and what it means for IndiGo

A leadership churn is afoot at India’s largest airline, Air Indigo. Aditya Ghosh has stepped down from the post of the President of the company and as a director of the company.

All you need to know about the reasons behind Ghosh’s exist, his tenure at Air Indigo, what the market and expert reactions to his exit are, and what happens next at India’s largest airline – here on Moneycontrol on our Story of the Day.

First things first – What happened?

News18 reports that budget carrier IndiGo on Friday announced that Aditya Ghosh has stepped down as president; and whole-time director of the firm and promoter Rahul Bhatia will be the interim CEO of the airline.

In a regulatory filing to the National Stock Exchange of India, IndiGo said that Ghosh’s exit from the post of president of the company will be effective from July 31 and as a director of the company with effect from April 26. In a letter to the employees, Ghosh went on to say, it was time to “step off the treadmill” and “embark on the next adventure” sometime in the near future.

“For the last ten years, it has been a relentless, exhilarating and a most satisfying task building IndiGo. I wish all my colleagues at IndiGo the very best as they move on to the next phase of growth,” he went on to add.

“I am overwhelmed with the messages and people breaking down and crying … not eating since last night. I will be forever grateful for that love,” he told CNBCTV18.com by WhatsApp. He also added to CNBC, “It’s been an amazing ride,” he said. “From 18 airplanes ten years ago to over a 160 today. More than a thousand daily flights. An eight-fold increase in top line over the past decade. Now sitting at a market cap of over Rs 55,000 crore with the stock price nearly double of the IPO price two and a half years back.”

Promoter and interim CEO, Rahul Bhatia, too wrote a letter to employees in which he thanked Ghosh for his service and that it was with mixed emotions that he was accepting his resignation. Bhatia did also point to what is coming up next in the immediate future of IndiGo.

He went on to say, “I am very excited to announce the return of Greg Taylor as Senior Advisor to the Company, reporting directly to me. As many of you know, Greg is no stranger to IndiGo having been our Executive Vice President of Revenue Management & Network Planning during 2016-17. Greg has more than 40 years of enormous and varied experience in large, World Class Airlines. This experience and his ability to understand the complexities of the airline industry will be invaluable to our future plans.”

Many industry analysts and observers have seen the churn coming in the past few months owing to more than a few teething problems at IndiGo, from engine problems to the leadership style of Ghosh to criticism in the Parliament to customer ire over the airline’s operations. Coming up next, we take a comprehensive look at what have been speculated as the reasons behind Ghosh’s exit.

As is the case with most high profile exits in the corporate world, there is a lot of smokescreen and speculation as to what may have caused the exit of Ghosh.

Ghosh had been at the receiving end of public ire over the last one year as several incidents of the airline’s ground staff misbehaving with passengers were reported. Is that the reason alone? One can’t say, but they certainly contributed to the exit, according to observers.

What we do know now is that decision was unanimous and played out in a boardroom in Gurgaon. We consider a few reasons for Aditya Ghosh’s Before Time Departure here:

1. Perceived stubbornness of Aditya Ghosh:

Shantanu Guha Ray, writing for Business Standard, reports at some length about Ghosh’s leadership and management styles. One important move that saw immediate resistance and fallout within IndiGo, related to Pratt and Whitney engines.

These engines promised 16 per cent fuel savings but eventually led to the grounding of a large number of aircraft, as we saw reported in large swathes of the media – both traditional and social – only recently.

In March, a mid-air engine failure forced an IndiGo flight bound for Lucknow to return to Ahmedabad. Following this, aviation regulator DGCA asked GoAir and IndiGo to ground their 11 planes that are equipped with "problematic" P&W engines.

This, apparently, was not entirely unexpected. Senior officials of Pratt and Whitney — in their representations to Directorate General of Civil Aviation — explained to the regulator the difference between air worthiness and air safety and why new aircraft engines would have "teething" problems for at least one million hours.

They also cited examples where pilots of IndiGo and Go Air explained why troubles in engines are a routine occurrence in the aviation business. But all these explanations did not assuage the doubts of the flying public about the airworthiness of these engines.

Ghosh also presided over the company’s decisions to buy cheaper aircraft. Add to this the other reasons we will speak about in a bit, there was a suggestion that Ghosh change his leadership style, and take some instant, bold decisions to hype the image of the company, and generally use marketing machinery to undo the snafus that have happened in the recent past.

Apparently though, Ghosh would have none of it. Guha-Ray goes on to write on Business Standard, “But it was clear to many that Ghosh did not care much about the image of the airline, as long as profits soared.” Which they certainly did.

This January, IndiGo said its profits rose by 56 percent at Rs 762 crore. A significant portion of the margin was boosted by foreign exchange gains and credits from, as it happens, Pratt & Whitney to compensate for engine glitches that grounded IndiGo's Airbus planes.

In an industry and country where perceived failure can topple leaders, IndiGo simply did not invest the time or the energy to explain to its customers in any meaningful way why the engine failures happened and what steps the company was going to take to ensure that such things did not happen again.

2. Defying the Ministry of Civil Aviation

The Ministry of Civil Aviation ordered IndiGo to shift its operations to Terminal 2 at the Indira Gandhi International Airport in New Delhi. But the airline was defiant in not wanting to do so. It was reported that Aditya Ghosh impressed upon the board to not shift because of the high aerobridge costs at the T2 Terminal.

Under Ghosh, IndiGo protested and the matter went to the Delhi High Court and subsequently to the Supreme Court, where IndiGo eventually lost and had to acquiesce to move its operations to T2 at the IGI in New Delhi. This incident clearly did Mr Ghosh no favours. Especially in the wake of…

3. Reports of aggressive behaviour by ground staff

In November 2017, it was reported that the security staff at the New Delhi airport manhandled a passenger. In a video, widely shared on social media and televised on multiple local news channels, two IndiGo staff members were seen pinning a passenger down on the ground after an argument on the tarmac.

The incident sparked a public outcry across the country, and naturally led to a trending Twitter hashtag, and of course, the jokes were relentless. But again, could not have done the reputation of IndiGo any more favours. The incident prompted the government to launch an investigation into the ground operations of the airline.

IndiGo chose to ignore the situation altogether initially. But, following the probe by the ministry of civil aviation, Ghosh was still defiant, and sent a seven-page report to the minister and explained through multiple screenshots from the video to explain the reasons behind the incident.

Eventually though, Ghosh had to apologise. "We find this incident extremely regrettable and wish that we would have handled this differently. Whatever may have been the provocation, whether verbal or physical abuse, we could have tried to display more restraint," Ghosh said.

But the past few months have been a turbulent ride for the normally unflappable Ghosh. Just when IndiGo seemed to have regained the best in on-time performance tag (after Aditya publicly bickered with rivals in early 2017), SpiceJet snatched the crown again November 2017.

November was also the month of the issue we just spoke of earlier. Adding to an already poor PR image, badminton star PV Sindhu took to Twitter to complain about a ‘bad experience’ on an IndiGo flight. Many of the Twitterattis responded, sharing their own episodes with the airline.

4. Plans to acquire and then not acquire Air India.

IndiGo had initially expressed a desire to acquire Air India, including the burgeoning debt that the national carrier came with. IndiGo and Jet were among the only two eligible players in India, but the news of its interest in buying debt-laden, liability-rich Air India sent stockholders’ concerns rising and stocks tumbling. Eventually however, a decision was made to not participate in the divestment process.

Because of all these reasons, the past few months have certainly not been smooth sailing for Aditya Ghosh, and these could well have contributed to his Before Time Departure. But Ghosh’s rise in the echelons of Air IndiGo is the stuff of legend, and the strides made by the airline under his leadership well worthy of note, and that is precisely what we will do next. Who is Aditya Ghosh? And what are the changes IndiGo saw under his leadership? That’s what we will find out next.

Who is Aditya Ghosh? And what had been his route to the upper clouds in the management hierarchy of Air IndiGo? Unconventional, to say the least. Not your typical foreign MBA student, Ghosh was in fact not even an MBA at all. A law graduate from Delhi University, his association with Bhatia and IndiGo began about a decade a half ago.

In 2004, as Bhatia was readying to launch a low-cost airline IndiGo, he roped in Aditya, then 28, as his General Counsel. It was an important responsibility. Bhatia was in talks with aircraft maker Airbus to buy 100 A320s. Aditya once again showed his mettle in handling the legal aspect of the order, the biggest the domestic aviation industry had ever seen at the time. Bhatia was impressed.

Profiling Ghosh in a January piece for Moneycontrol, Prince Mathews Thomas, went on to note, “Four years later and post IndiGo’s launch, when the airline’s founding President and CEO Bruce Ashby resigned, Bhatia surprised everyone by naming Aditya as the successor.”

It was a surprise indeed; industry observers expected that Sidhant Sharma – who had resigned from SpiceJet at around the same – would be tapped next, but that was not be. Lending credence to the belief was Ghosh being the ‘acting CEO’ for the first few months. He did enough during those months to convince Bhatia about his worthiness for the top job. In August 2008, Bhatia crowned Ghosh as the IndiGo President. Ghosh was all of 32 at the time.

Under Ghosh, IndiGo’s wings spread.

Achieving the largest market share, the company has collected whopping 55,000 crore market capitalization.

The low-cost airline reported its 9th consecutive year of profitable operations in 2017.

It has doubled its domestic market share in last five years from 20.3% in FY12 to 39.6% in FY17.

The company witnessed a growth of 31.5 percent in its passengers during 2017, and a growth in capacity of 27.5 percent. The total revenue increased by 16.3 percent. While providing cheap flights, IndiGo has consistently maintained the position of the profitable domestic airline since 2009.

IndiGo’s current throughput is close to 1,000 flights per day across 49 destinations (41 domestic and 8 international) carrying an estimated 4.4 million passengers every month. IndiGo was also the first Indian carrier to operate 1000 flights a day.

IndiGo is the largest domestic passenger airline and the fourth largest low-cost carrier in the world.

A year after dropping off from the list of top 10 Asia Pacific airlines on the basis of on-time performance (OTP), IndiGo regained its place in the hallowed group. It was ranked ninth in the Punctuality League study published by OAG, an air travel intelligence company based in the UK.

During this almost-decade, Ghosh’s own credibility and success grew from strength to strength.

In 2012, four years after his took charge of Indigo, Ghosh ranked 27th globally in Fortune's 40 UNDER 40 list of businesspersons. This is how Fortune described Ghosh's success: "The neophyte delivered, despite his total lack of operational experience. The low-cost carrier, which has a little over $1 billion in revenue, recently started international flights and placed the largest order in commercial aviation history for 180 Airbus A320s, totaling USD 15.6 billion. Ghosh’s secret to success? No frills, all the way. His office is small, with no receptionist and no marketing department. On business trips he stays in budget hotels with the rest of his staff. Job creator: IndiGo created 2,500 jobs in the past year."

Ghosh's success was widely recognised. He received the GQ Businessman of the Year award in 2013 and was nominated for the CNN-IBN Indian of The Year in the business category. In the same year, he was awarded ‘CEO of the year’ award by SABRE. He also won the Low Cost Leadership award at the “World Airline Awards” in 2011.

In what would be one of the highest payouts in India Inc., Aditya Ghosh bagged a whopping Rs 21-crore one-time incentive, along with 7 lakh shares, for the fiscal year ended March 31, 2016.

It was all smooth sailing for Ghosh until, well, it was not. Started with a single plane, this low-cost carrier has a fleet of 161 aircraft. The airline has touched the sky under the supervision of Aditya Ghosh, a seasoned pilot himself. And now with his premature take off, how did the stock markets and the industry react? We’ll find out next.

InterGlobe Aviation rallied over 2 percent in early morning trade today the Ghosh story evolved over the weekend. The stock has been an outperformer on a year-to-date basis. It rose 17 percent so far in the year 2018 and on a 1-year basis it rallied nearly 30 percent. Experts feel that the fundamentals of the company still remain intact and any dips should be used to buy into the stock.

“Aditya Ghosh had been the face and the most capable leader of Indigo. It is the team and the strategy which takes a business forward which remains intact. Every panic in IndiGo because of the news is a terrific opportunity to buy,” Raamdeo Agrawal, joint MD at Motilal Oswal Financial Services told CNBC-TV18.

The company is scheduled to report results for the quarter ended March 30 on 2nd May. Motilal Oswal which maintains a neutral rating on the stocks sees profit falling by 16 percent on a year-on-year basis and sequentially net profit could fall by 51 percent.

At about 2, at the time of me telling you this story, Interglobe stocks are trading down 0.57% at about 1400 rupees. How the stock price evolves over time, and what might be the short term implications of Ghosh’s exit and the impending leadership churn at IndiGo,… you can find out all that and more by staying with us on Moneycontrol where we will bring you the latest.

And finally, on this podcast, we discuss what is next for IndiGo without Ghosh?

Prince Mathews Thomas, writing for Moneycontrol, goes on to note that the impending churn has been predicted for a while. Many now point at the appointment of Wolfgang Prock-Schauer as Chief Operating Officer in January as the first sign of more leadership churn at IndiGo’s top leadership rung.

An industry veteran of nearly 40 years, Prock-Schauer came with a mix of India and overseas experience with stints in Air Berlin, Jet Airways, Austrian Airlines and GoAir. His experience was said to be crucial for IndiGo, which is preparing to launch long haul flights. Ahead, in future, IndiGo plans to expand internationally in the European cities of Frankfurt and Paris, and to Gatwick, Manchester and Birmingham in the UK, starting October 2018, and Prock-Schauer’s experience in this regard was described as crucial.

We have already spoken of the addition of Greg Taylor and the experience he brings to IndiGo especially as the company prepares to more and more international.

Sources have also told us at Moneycontrol that one more big addition is set to happen in IndiGo's leadership – Willy Boulter, who was vice-president, commercial strategy at Etihad Airways and a senior executive at IATA - the trade association of world airlines, may join IndiGo as Chief Strategy Officer.

All three — Prock-Schauer, Taylor and Boulter — come with considerable international exposure coupled with understanding of the Indian aviation market. But not everyone is convinced by Bhatia's move to induct such heavyweight expat executives at the top. "It's debatable if we need expats to run the business. And bringing in different people in different areas may not be a cohesive team," a senior executive from the industry told Moneycontrol.

The arrival of the trifecta of the expats, as it were, is a trend often seen in Indian aviation companies aiming to go international. Jet Airways Chairman Naresh Goyal is known for his preference for expats. The airline's present Group Executive Officer is Capt Hameed Ali, a Bahraini national.

Over the years, many expats like Nikos Kardassis, a Greek American, Victoriano Dungca, who was a veteran in Philippine Airlines, and Ali Ghandour, who founded Royal Jordanian, have been part of the senior management in Jet Airways. Bhatia too depended on an expat — Bruce Ashby — to set up IndiGo after whom Ghosh took charge.

IndiGo is presently standing at a crucial juncture. It now operates 1,000 flights a day, will induct record number of aircraft into its fleet (including 50 ATRs) and will expand its considerably large wings nationally and internationally.

While it may not be clear to us what the reasons behind Ghosh’s exit might be, we can be certain, that from the looks of it, IndiGo is getting quite top-heavy, and whether the weight can take off or lead to a crash landing, we only have to wait and watch.