IndiGo braces for turbulence ahead

Change is the only name in the game for India’s IndiGo as it prepares to go big on the region’s network stage. Anjuli Bhargava reports.

June 1st 2022

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On May 18, IndiGo finally confirmed the rumors circulating in the corridors of the LCC for several months: Ronojoy Dutta, the CEO and full-time director of India’s most successful airline, will exit the airline after his contract runs its course. Read More » On October 1, he will be succeeded by the very popular president and CEO of KLM, Pieter Elbers, aged 52. IndiGo is wholly-owned by InterGlobe Aviation Limited.

Septuagenarian Dutta’s departure, although regarded as a given by many because of his age, is but one of many events that have rocked the airline and its staff in recent months. On February 19, following a bitter fall out between the LCC’s co-founders, one of them, Rakesh Gangwal, resigned from the airline’s board and said he would offload his equity in the carrier in the next five years.

A few weeks later, the airline’s parent appointed Gaurav Negi as its new chief financial officer, the fourth person to hold the position in the short span of three years, an unusual amount of churn in the once steady IndiGo ship. This announcement was followed by the resignation of Willy Boulter, the chief commercial officer, who has been with the LCC since 2018.

Then in May, the airline revealed its new chairman would be Venkataramani Sumantran. The 2022 changes at the top followed IndiGo’s farewell in 2021 of two other senior employees, legal counsel, Priya Mehra, and the head of the company’s investor relations, Ankur Goel.

This new team will be contending with a radically re-shaped commercial airline environment in India.

IndiGo will have to breast competition from new low-fare carrier, Akasa Air, which is preparing to fly India’s skies in July this year and also deal with a newly privatized Air India that includes full ownership of AirAsia India.

Additionally, if reports are correct, Jet Airways, grounded since early 2019, will be returning to the market in coming weeks after being awarded its air operator permit. It is certain to be offering ultra-low fares to attract people back to the former full-service carrier.

At Air India, now 100%-owned by Tata Sons (Tata’s), it is believed AirAsia India is being subsumed into the national carrier and will emerge as a new entity under the Tata umbrella. The group’s new CEO is the highly regarded Campbell Wilson, founding CEO of Scoot, a member of the SIA Group’s senior management and until his move to India, in the midst of his second stint at Scoot as the LCC recovers from the pandemic.

In a separate sector of the market, it is assumed Vistara, the joint venture between Singapore Airlines and the Tata’s, also will be absorbed into the Air India group.

When Tata’s consolidates its strategy to resuscitate the faded former flag carrier, it is predicted it could develop into a strong competitor for IndiGo, an LCC that transports more than 50% of India’s airline passengers.

If domestic competition is about to become more challenging for India’s airlines, the macro environment will be no easier to navigate in the months ahead.

IndiGo and its rivals are dealing with a depreciating rupee as fuel prices are doubling as well as contending with weaker balance sheets and the nerve wracking uncertainty of the pandemic’s life.

“IndiGo may be on a stronger wicket overall, but when the tide turns, the losses are bigger than others as are gains,” a SpiceJet source told Orient Aviation, and added the larger the airline the greater the need for rationalization in the competitive environment that is developing at India’s airlines.

The financials tell the story. IndiGo’s losses at March 31, 2022 for the three months were US$216 million.

The airline’s consolidated loss had widened to Rs 1,682 crore for the three months with higher fuel costs more than offsetting a rebound in air travel demand. It reported a consolidated loss of Rs 1,147 crore in the year-ago period as the raging global pandemic shut borders and kept people at home. Fuel prices in Q4 2021-2022 increased by 61% compared with the previous matching months, although a recovery in air travel has improved the company’s recent revenue position.

There is another factor driving the changes in the top leadership at IndiGo. As the pain of the pandemic eases, the LCC is returning to its ambitious pre-pandemic plans of building a bigger international network supported by its existing fleet, but critically by new A321XLRs that facilitate developing regional and long-haul networks.

In the meantime, April and May were testing times for the carrier, especially for the C-suite. After the airline’s commanders and other cockpit and cabin crew became fully cognizant of the generous employee stock options (ESOPs) the company handed to senior management at a time when the airline’s employees had taken deep pay cuts or been furloughed, uproar broke out.

Some of the pilots - especially those who joined IndiGo from Jet Airways – have been enduring a far longer period of economic pain than in the life of the pandemic alone. To learn upper level managers had doled out benefits to themselves and not the staff at large had a very negative impact on company morale.

IndiGo reacted to the pilot’s protests by offering crew a salary increment of 8%, an action that added fuel to the fire. The management looked at the hike as an increment, viewing the present salaries and contracts as the “new normal” in a changed reality from the pre-COVID world. The pilots and crew dismissed the 8% restoration of their old pay packages as paltry and asked the management to take a hike, so to speak.

As pilots voiced their ire in various internal and external platforms, the management cracked down on the protests. Five pilots were suspended and have since resigned as they await their no objection certificates to clear them to work elsewhere. The Directorate General of Civil Aviation (DGCA) is investigating allegations seven pilots used abusive language against the airline over an emergency frequency, further angering pilots who view the DGCA action as intimidation. Many pilots contacted the Airline Pilots Association of India (ALPA) for support. The association in turn has written to the civil aviation minister, Jyotiraditya Scindia, to spotlight the high-handed manner of the company’s HR department and sought his intervention.

The airline does not support establishment of a crew union.

IndiGo insiders told Orient Aviation the biggest change at the airline is the amount of time and involvement IndiGo’s remaining founder and managing director, Rahul Bhatia, is devoting to the airline group.

Since Gangwal has exited the carrier, and even before his departure according to some observers, Bhatia is far more active in the day-to-day running of IndiGo.

Although Elbers will lead IndiGo, sources are of the view the reins of the airline, for now, will remain firmly in Bhatia’s hands.

It is obvious InterGlobe Aviation wants to inject younger blood, introduce fresh thinking and reduce the average age of the top team at IndiGo. Both Dutta and Willy Boulter are well over 60. With their departures, the airline’s COO, Wolfgang Prock Schauer, is the only member of IndiGo’s C-Suite over 65. In general, the team that will take on the new Tata airline will be “leaner and meaner”, said sources.

Roles within the airline’s upper echelon have been redefined. Sanjay Kumar, the airline’s chief of strategy and revenue is taking charge of international operations, including network planning, revenue management, sales and distribution.

Boulter’s responsibilities have been split among the existing top management team, barring a new chief commercial officer, Mahesh Malik (also over age 60), brought in to handle cargo. “The new team faces increased competition as the Tata’s and other players gear up to increase their shares of the market, no matter how one looks at it,” said a senior management source at the airline.

Will this help the airline fly higher and stronger? It is too early to tell.