hi everybody the Indian Aviation Space is one of the toughest spaces to do business in in the past 10 years itself India has seen the fall of giants like king fisher Jet Airways Sahara air and even the iconic Deen air and even while existing Airlines have been struggling to make a profit Indigo had been insanely profitable for 10 consecutive years till 2018 and even if you draw a ticker dip comparison you will see that in 2015 while Jet Airways was still a dominating player while jet generated a loss of 297 cror spice jet generated a loss of 687 cror Indigo was way ahead with a profit of 1,300 crores and today indigo is so far ahead of its competition that if you look at India's non-stop domestic market share while spyit stands at 11. 7% Air India stands at 10. 2% go stood at 8.
8% whereas Indigo was way ahead with a 52. 7% market share which is more than the next five competitors combined the question is with Indian Aviation being such a tough Market to operate in with giant competitors like Jet Airways Deen a and Air India how did Indigo become such a strong Monopoly and most importantly how on Earth had this company been profitable for 10 consecutive years this video is brought to you by grip invest but more on this at the end of the video the answer to indigo's massive growth could be summarized by Louis pastor's quote wherein he said Chance favors the prepared mind to tell you about it back in 2005 when Indigo just entered the market the Indian Aviation Space was being dominated by the likes of Jet Airways deire and Air India this is when both King Fisher and indigo started their operation but if you look at the growth of these companies after 2005 there's something very interesting to note until 2007 all these companies were operating with losses that were proportionate to their scale while king fisher incurred a loss of 48 cror spy it stood at a loss of 132 cror J stood at a loss of 423 cror whereas Indigo incured a loss of 234 crores but suddenly after 2008 something crazy happened and out of nowhere King Fisher's losses shot up by four times to 1,900 crores spy losses shot up to 340 crores Jet's loss was relatively stable at 400 crores but somehow Indigo managed to pull off a profit of 82 cres and after that shock while King Fisher and Jet started failing indigo's profit again shot up by 400% to 4. 84.
2 crores and from there onwards indigo's market share started increasing rapidly eventually turning it into a monopoly in the Indian Aviation business now the question over here is how did these giant players suddenly fall down and moreover how did a baby company like Indigo end up becoming a monopoly well that is because indigo very very carefully avoided the mistakes made by these Airlines and on top of that it deployed some game-changing business strategies that changed the Indian Aviation Space forever to understand this let's try to understand the three fundamental truths of Indian Aviation number one in spite of the airline business being an extremely Capital intensive industry needing thousands of crores of investment the cost of flying in India is already at the borderline of affordability for most people so if you want to survive in the Indian Aviation Space you cannot raise your prices Beyond say $5,000 or 6,000 rupees if you want a decent amount of customers so the filter of cost is the only thing that matters to most customers as in even if the flight is scheduled at 2: a. m. if it's 1,000 rupes cheaper people will still opt in to lose their sleep rather than paying more secondly the flying Market in India is still at the baby stages in spite of having more than three times the population of the us as of 2017 while India's Air Traffic stood at just 161.
5 million the US was way ahead at 632 million and lastly in spite of your charges being at the threshold of affordability it is very very difficult to pull off a profit in India why because the most expensive element in your balance sheet is completely out of control and that is the fuel cost that is around 35 to 45% sometimes even 50% of your operation cost and this price keeps fluctuating based on the geopolitical situations so the only way you can make money in the Indian Aviation Space is by increasing your margins without increasing the cost of your tickets and indigo was an absolute Master at it the first thing Indigo did was that it surprised the entire industry by ordering 100 aircrafts with airb in a single order in the very first year of its operation and this deal had an order value of $6 billion which was one of the biggest aircraft deals in aviation history now on the outside most people thought it to be crazy but in reality it was a genius deal made at a strategic time and MrRakesh gangwal the co-founder of indigo made this big decision for three specific reasons number one back in 2005 airus almost completely lost the Indian market and the Indian companies started buying from boing this was because Airbus aircrafts met with a series of accidents in India and this included the air crashes in 1988 1990 and 1992 but after fixing all these problems and the safety issues airus was desperately finding a way to come back to the Indian market and during this time when Indigo placed such a huge order of 100 aircrafts airus was by default willing to sell them at a du cheap cost now although the exact prices are not revealed as far as the data from the order of Southwest Airlines and Brian air indicate the discount could have gone as high as 50% secondly the Airbus aircrafts were way more efficient than Boeing aircrafts and lastly indigo used something called the sales and leaseback model that drastically reduced its cost of operation and here's how this model worked out this is the technique wherein the airline buys the aircraft from the manufacturer and sells its asset to another party and then rents it back from the same buyer now let's take a contrived example to understand this when Indigo places an order for 100 aircrafts it gets a massive discount by which a $100 million aircraft could be bought at a modest price of $50 million and then Indigo sells this aircraft to a leing company like Bo Aviation for $55 million now here itself they make a profit of $5 million so after the sale is done Indigo rents the same Acra from boc Aviation for a period of 5 to 8 years such that Indigo will pay the rent for its incoming revenue from operation now this is a great deal for bocc because even at $55 million boc Aviation gets a $100 million aircraft at 55 million without the risk of placing a bulk order and with that they also getting a readymade customer base that will give them a recurring revenue and at the the same time if you see for Indigo it's an amazing deal because it gives Indigo three incredible benefits over its competition first of all the company generates an upfront profit of $5 million which could be used for cash flow and indigo can stay cashr while other players struggle during crunch times secondly under the sales and leaseback model Indigo stated that not all these aircrafts will arrive at once but with a gap of 6 to 8 weeks so that they can steadily accommodate the flights as per the market conditions on top of that any technical glitch or issues with the engines were to be taken care of either Airbus or the engine supplier this way Indigo neither had to pay the cost of Maintenance staff nor did it have to pay for maintenance cost of the aircraft and lastly Indigo could easily use way more air cars with very less Capital compared to the competition now the fun fact is that even Kingfisher used the same sales and leback model with Airbus but even then king fisher failed miserably and indigo succeeded at the exact same time in the exact same Market the question is why did this happen well that is because of a fundamental truth of the Indian Flyers market and that is customers love living king size but they don't like paying king size to tell you about it King Fisher and Jet Airways both these Airlines wanted to give a king-sized life to their customers so they give out inlight meals inflight entertainment system and I even remember my dad used to get headsets for free at Kingfisher flights whereas IND decided to eliminate all these perks and decided to give the customers only what was absolutely needed to travel and that is a seat and a little bit of leg room why because food and entertainment would need equipments that would require more fuel to carry and operate eventually increasing the cost reducing the efficiency and complicating the workflow because that would again need additional maintenance and in order to minimize the travel time king fisher opted in for something called the point topoint model of operation whereas Indigo opted for for something called the Hub and spoke model of operation and here's how these two model worked out let's say we have six destinations A B C D and F now if you have to offer a flight connecting all these destinations using a point too model here's how it would look like you would need a flight from A to B B to C C to d d to e and e to F and then you would need to connect a to c a to d a to e and so on and so forth so in total if you want to connect all these six destinations you would need 15 planes but in the hub and spoke model this becomes very simple instead of connecting all these destinations with a separate flight you create a hub o in between these six points such that if you want to connect a to c this is how it would work out there'll be a plane a which will carry all the passengers who want to go to B C D E and F and then when plane a lands at the Hub the passengers will go to their respective flights which are B C D E and F and those planes will then fly back to their respective points now on the outside this might look a little complex to you but you know what guys here are the four major benefits of using the Hub and spoke model number one you only need six planes in this model as compared to 15 planes in the point topoint model secondly by using the Hub and spoke model the planes are more occupied because now you are serving the same number of customers but with only six flights thirdly due to the presence of the central Hub maintenance becomes extremely easy and lastly it is very very easy to expand your network all you need to do is just add another spoke by adding another plane to the Network and that's it you can connect all these six destinations with the added Point whereas if you want to add another destination to the point too model you will need another six planes to do it therefore the Hub and spoke model is that model that can connect people from anywhere to everywhere in the most efficient manner in this case if you see because of using a point topoint model while king fisher held a market share of 19. 99% with 66 aircrafts Indigo almost had the same with 17. 6% market share but it was able to serve them with just 38 aircrafts this is the reason why King fishion and Jet Airways in the race of providing comfort and convenience were not able to pull off a profit whereas Indigo although initially in loss began expanding rapidly without bleeding cash this continued from 2006 to 2008 and then came the most horrific time in Indian Aviation when the oil prices started shooting up from July 2007 to 2008 the oil prices skyrocketed from just $76 per barrel to $132 per barrel and when this happened every single Airline started bleeding money this is the reason why if you see from 2007 onwards the losses of Airlines touched crazy levels king fisher went from 48 to 1,900 cres in loss spy went from 132 to 340 cres in loss jet was steady at 400 cres in loss but then it hit rock bottom to 1236 CR by 2011 but you know what guys this is where Indigo became an a opportunist and like we saw in the graph while every other Airline was bleeding money Indigo went from a loss of 234 crores to a profit of 82 cror which then shot up by 400% to 480 crores and then touched an insane Mark of 700 cres all of this happened because indigo's operational costs were low and they were able to rotate their cash better because of which they were able to pull off a profit when every other player was bleeding and from here onwards for the next 10 years Indigo reached record levels of profit and today it stands as a market leader with a market share of more than 54% and in addition to its models of operation while king fisher was bleeding indigo used it as an opportunity by directly poaching the king fisher Pilots this was because king fisher was not able to pay it Pilots due to its losses and indigo all thanks to its cash reserves offered the pilots a bonus that was almost equal to the pending salaries at Kingfisher this way according to the reports somewhere between 200 to 300 Pilots joined IND in just 6 months this is how Indigo saved a ton of money on training and onboarding of pilots and became even more profitable in the coming years similarly they also did not make the mistake of Spy Jet or Jet Airways with unstable leadership while Spy Jet has been sold and bought many times Jet Airways at one point didn't even have a full-time CEO for 15 months whereas Mradya go LED Indigo for 10 long years from 2008 to 2018 and the result of all these strategies is as astounding as it could be from 20123 to 1617 indigo's average expenditure on establishment cost was just 11.
01% of the overall operational cost whereas SpiceJet go a and Jet Airways spent 17. 9 11. 2 and 16.
55% respectively Indigo also had some of the lowest number of employees per aircraft in the industry in 20101 while jet needed close to 180 employees per aircraft Kingfisher needed 110 spy needed 120 whereas Indigo needed just 96 employees per aircraft the fun fact is that Air India needed 250 employees in 2012 and when it comes to customer service and Hospitality Indigo has been extraordinary with the lowest complaint percentages and cancellation rates in the industry this is the reason why from 2012 onwards if you draw a ticketed comparison of all these Airlines while king fisher went out of business Indigo started achieving record levels of profit and by 2015 while jet generated a net loss of 297 cror spice jet generated a loss of 687 cror Indigo was already generating a profit of 1,300 cror now although jet tried to come back it sunk down by 2019 but Indigo kept going going and going and today it commands a market share of more than 50% in the Indian Aviation Space with an absolute Monopoly in 194 routs out of the 531 routs that it operates eventually Indigo remained profitable for 10 consecutive years which is absolutely remarkable in an industry that is considered to be a graveyard of regional Airlines this is the iconic story of indigo Airlines with that let's move on to the most important part of the episode and that are the lessons from the case study before we move on I want to thank our partners grip invest for supporting our content people in this case study like we saw the one thing that helped Indigo grow while all other competitors was sinking during the bad times was its cash flow management the asset light approach that Indigo pioneered more than a decade back is now being replicated by companies in multiple Industries in various forms companies like furlenco bokou big spoon Everest AO hosperity and several others are now leasing assets instead of buying them outright this eventually fuels their growth while managing their cash flows better the best part about this shift is that investors like you and I can now benefit directly from the shift in corporate strategy and we can actually create our own stream of fixed passive income this is where our partners grip invest come in grip invest is an investment platform that lets you co-invest in physical assets such as Vehicles equipments and Furnitures that are leased to corporates so far grip has raised 150 CR on their platform across 100 curated deals over 75 brands that are a part of our daily lives and they've also returned 30 CR Rupees to the investors with zero default in payments so if you're someone who's entirely invested into the stock market you might have seen your portfolio drop significantly in the last one week but had you Diversified into grip invest assets which are not linked to the stock market you would have preserved a portion of your cash previously such New Age opportunities were not available to retail investors like us but now it is so if you're interested in diversifying your asset allocation to generate some passive income you can sign up on www. g grip invest.
