The change in personnel, both in the cockpit and the board room of Indigo Airlines, is the topic of this episode of Digging Deeper.
Indigo Airlines, with 200 airplanes in its fleet, is the largest airline in the country, and also the first to achieve the feat. In a year that has not been kind to the aviation industry, Indigo seems to have escaped some of the year's worst tyrannies, but only just.
While Indigo topped up capacity by 30 percent year-on-year in October, the rise in the rest of the sector was a smidge above 9 percent year-on-year. For comparison, the sector saw an year-on-year growth of 18.9 percent in June, and 12.3 percent year-on-year in August. Analysts who spoke to Financial Express said that Indigo is leveraging a strong balance sheet to gain market share and remains largely unfazed by falling yields. While that seems hunky dory, all is not well at the top. Indigo's ambitious expansion plans notwithstanding, it remains a company without a full-time CEO.
In April, when we discussed the exit of Aditya Ghosh from Indigo, we said there was a churn afoot at Indigo. That churn has kept on churning. Multiple sources have told Moneycontrol that a possible difference of opinion between Indigo founders Rahul Bhatia and Rakesh Gangwal may be at the heart of the ongoing top management rejig at Indigo.
These differences, Prince Mathews Thomas reports for Moneycontrol, may even have led to the resignation of Greg Taylor, a senior advisor who was tipped to be the next CEO. Although the airline is yet to comment on the exit, The Financial Express and Business Standard have said that Taylor is on the way out. There is speculation also that the recent appointment of Ronojoy Dutta as a Principal Consultant at Indigo may have also had a role to play in Taylor making an exit, stage left.
The story of the missing pilot in the airline is what we will dig deeper into on this edition of Digging Deeper.
Choppy at the top
Indigo needs a full-time CEO but its founder Rahul Bhatia, in an interaction with Moneycontrol, says the carrier is not going to rush through the decision. He also denied that he and co-founder Rakesh Gangwal had disagreements on the choice of a new candidate. "How can we have differences when we haven't appointed a CEO?" he asked.
The role of Chief Executive has stayed empty since the exit of blue-eyed boy Aditya Ghosh (now at the helm of OYO). Since Ghosh's exit, co-founder Bhatia has donned the additional role of interim CEO.
Greg Taylor was tipped to fill the role of CEO, but Business Standard reports that Taylor has communicated his desire to leave the company at the end of December. The reason according to people in the know? The appointment of Ronojoy Dutta, ex-President of United Airlines and ex-CEO of Air Sahara, as principal consultant. Dutta, announcing his appointment last month, said he would develop a five-year plan for the airline and report to Bhatia.
“Taylor didn’t see a future with the company after Dutta was brought in,” an industry executive told Business Standard.
Taylor was brought into Indigo in 2016 as executive vice-president of revenue management - Taylor's area of expertise - and network planning at the behest of his one-time colleague at United Airlines. With over forty years of experience in various roles he held at United and US Airways, Taylor's appointment was seen as part of Indigo's aggressive growth plan.
Taylor brought with him a new team, largely comprising of foreign nationals who had held important roles in the aviation industry outside of India. Michael Swiatek, an executive from Chile's LATAM came in as Chief Planning Officer; William Boulter, of TAAG Angola Airlines and Etihad vintage, was appointed Chief Commercial Officer; Cindy Szadokierski was appointed Vice President of airport operations; Scott Brandt was named Vice President of corporate planning and analysis.
Following this spate of foreign national appointments - incidentally a trend quite common in the Indian aviation sector - we saw a few exits at Indigo, most notably Aditya Ghosh and Sanjay Kumar.
After Aditya's exit, it was widely believed that Taylor would take over as CEO. Until of course Dutta came into the picture. A senior executive at Indigo told Moneycontrol: " It was clear that only one of them could exist at the airline."
Founder vs Founder
Taylor was said to be Gangwal's choice for the top job, and Dutta Bhatia's. Thomas writes this was not the first time Bhatia had reached out to Dutta. "Bhatia had tried tapping Dutta even as he was setting up IndiGo in 2005. But instead of Dutta, Bruce Ashby who was a veteran at US Airways (where Gangwal was once President & COO) became IndiGo's first CEO," said a senior executive at Indigo.
Rubbishing the notion that there were differences between the founders, Bhatia added that Dutta has been a "long-time friend of both me and Rakesh (Rakesh Gangwal is the co-founder of IndiGo). We are good friends and have known him professionally and personally.” He added, "For the moment he is putting together a plan and he is very good at putting things together and putting a strategy together. I will rely on him and then we will see how the future is going."
Bhatia declined to put a timeline on when the next CEO will be announced.
Bhatia said that the airline is organising itself to make the most of the opportunities in the domestic and international markets.
"We are going through so much change. We are organising ourselves and new capacity is coming in," he said, and added that the airline will start inducting A321 Neo aircraft from "next week."
The aircraft is more fuel efficient and has a higher capacity. The plane will add to IndiGo's international plans.
"There are great possibilities nationally and internationally. Domestically too, we are now flying to destinations we never thought we would earlier," he said.
Bhatia added that the airline is on a recruitment mode and is creating a bench strength. "We are preparing for a bigger future," he said.
Over the years, IndiGo has grown rapidly while also being one of the few airlines to consistently make a profit. Last quarter, it posted a loss for the first time ever.
The strengthening of the rupee and correction in crude rate will "improve the situation," said the entrepreneur. The two factors had led to the airline announcing its first quarterly loss since the time of its listing.
Who is Ronojoy Dutta?
Dutta, an alumnus of IIT Kharagpur and Harvard Business School and a veteran of the American airline industry, has been tasked to frame a five-year business plan for IndiGo at a time when India's largest airline is furiously adding capacity. And the airline has big ambitions for international operations. This is a crucial time, and the role of the chief executive would be critical in pulling off the plans.
Dutta and Gangwal were colleagues at United Airlines. Later Dutta headed the airline, even as Gangwal was spearheading rival US Airways. With over 25 years of experience in the aviation industry, Dutta has a lot to offer. From July 2004 until 2006 he served as chairman of Air Sahara, and from 2004 until 2008 Dutta served as the president of Sahara Airline Limited.
He took on full responsibility of a $400 million full-service airline with a route system including 25 cities along with 44 aircraft. HE later grew sales at 35 percent a year. In 2007, Dutta joined US-based AAR Corporation as a strategic adviser for the Indian market. From 1995 until 1999, prior to becoming the president of United Airlines, Dutta served as the senior vice president of planning and revenue management.
Dutta's experience in the international market will be relevant for IndiGo, and also his relationships with his industry peers, as the Indian airline reaches out to international players for codeshare. Reports have pointed out that IndiGo is already in talks with Qatar Airways and Turkish Airlines for codeshare agreement.
A codeshare agreement allows passengers to tap networks of the two airlines.
Dutta will work in tandem with Wolfgang Prock-Schauer, who was appointed COO of IndiGo in January.
Aviation sector woes and Indigo bucking the trend (somewhat)
Analysts at ICICI Securities recently wrote, "Jet Airways and Air India continue to suffer from basic working capital like payroll spend; Vistara and AirAsia are still in deep losses and SpiceJet and Go struggle to prevent balance sheet erosion."
In October 2018, SpiceJet reported a share of 11.7 percent, its lowest in more than two years, reported Financial Express. GoAir, on the other hand, had only 8.8 percent compared with the 2018 average of 9 percent. Jet Airways and its low-cost subsidiary JetLite commanded a share of 14.9 percent and national carrier Air India had 12.2 percent.
Indigo, the leader of the pack, had a 42.8 percent share in October 2018. Its strong cash balances of 12,702 crore rupees at the end of September indicate a phenomenon that is against the current trend in the Indian aviation sector.
The double whammy of crude prices going up and depreciation of the rupee had clearly hit the sector in India. But with crude prices down about 30 percent from peak levels and the rupee off its all-time lows, airlines may yet heave a sigh of relief. Industry watchers say Indigo will benefit the most.
“We expect a year over year capacity increase in terms of available seat kilometres of 35 percent for the third quarter. For the full year, we expect capacity increase of 30 percent,” Rahul Bhatia, interim CEO, IndiGo, said at an earnings call.
The airline has 202 aircraft, a mix of Airbus A320s and ATR 72s and will be inducting its first Airbus A321neo later this month. As of now, overseas operations still account for less than 10 per cent of IndiGo’ total daily flights (115 flights daily to 15 overseas destinations), but the airline's sights are set firmly on expanding into international airspace.
The airline has launched new destinations – Male, Phuket, and Hong Kong - and introduced a service between Amritsar-Dubai and Vijayawada-Singapore. It has also expanded services to Abu Dhabi, Doha, and Kuwait. Currently, it serves 15 overseas destinations with 115 daily flights. Like we said earlier, Indigo is also in talks with Qatar Airways and Turkish Airlines for commercial partnerships, including interline and codeshares.
“For a low-cost airline, an interline and codeshare could help it get higher revenue per flight. The origin and destination traffic to Doha alone are not enough for growth. The incremental interline traffic will help tide over low seasons and give a huge fillip to their distribution, which is currently restricted to the website, select partners and general sales agents,” said aviation expert Ameya Joshi to Business Standard.
The runway ahead
Business Standard also reported that IndiGo will seek board approval for Dutta’s appointment soon. Till then, promoter Bhatia will continue to act as interim CEO. "The airline has already formed a core team of departmental heads to take decisions. With the demise of Devdas Mallya last month, the board of IndiGo has to appoint a new chairman for passing the resolution."
A person aware of the development told the daily, “The promoters are looking for someone who can lead the company for the next five years. The executives that IndiGo has brought in are all experts in their domain. They are so busy planning new destinations, improving revenue or ground services, that none of them has the time to take a top view of the airline. A CEO has to be on ground, talk to the pilots and boost the morale of the ground staff.”
While we do not have confirmation from the airline about these developments, what is undeniable is the need for a full-time CEO sooner rather than later considering the soaring plans Indigo has coloured for itself.