I would like to share some details on a story we are pursuing and would appreciate inputs from others from the aviation domain on this topic. The story concerns the latest star on the Indian aviation scene that is Indigo Airlines (6E). Our main lead on this story is what appears to be a disgruntled member of the management who has put in his papers or on the verge of doing so: and this element must be factored into whatever he is saying now.

Essentially the gentleman makes the case that 6E is another ponzi airline being run on exactly the same lines as KF. The airline is one big exercise of converting large sums of black moolah to white. Keeping the multiple conspiracy theories out, the main summary is roughly as follows:

> There is no way 6E is making money at the current fare levels as the airline is dumping capacity in order to gain market share. According to him (and i havent verified this independently) 6E is selling over 70% of its inventory at the lowest fare bucket, while the corresponding figure for Jet is around 40-50% and for AI around 25-45%. Fare buckets are labelled A B C etc and there is a diff of around 200 rupees between 6E and AI for the same bucket. So if bucket A is 4000 rupees in 6E it is 4200 on AI and so on.

> 6E also sells inventory (seats) on convoluted routings like CCU-PNQ via MAA and DEL-GOI via BLR. This impacts the profit per seat (yield).

> 6E is paying its crew as much as 9W. and in many cases more. Infact the gentleman himself claims to make 30% more than his counterpart at Jet which he chooses to call a Marwari company (implication=miserly?).

> The third important point is something I have observed and tend to believe. 6E has a more buffered schedule than other LCC's and even Jet. As i have shared in a previous post, we noticed 6E turnarounds were much longer and spaced out than even AI! On the other hand, 6E and SG aircraft are flying well past midnight as compared to AI or 9W. But on the whole, how much truth is there in the assertion that 6E aircraft utilization is higher?

> as many as 12-16 aircraft are out of rotation in checks for which they send planes to Sri Lanka and Singapore.

> In response to a query on lower aircraft acquisition cost (since cost of asset does factor into profitability question), i was told that 6E has actually paid to buy earlier delivery slots from other airlines: and these deals were struck directly with airline not Airbus. So were the aircraft cheaper.

So to sum up: if the airline is paying the same amount as everyone else for the asset (aircraft) and crew, landing slots, fuel etc and so has similar costs, how can they be profitable when they are selling more seats at a lower price than the competition? Valid question?

Apart from profitability, the gentleman talked of a more disturbing aspect, that of safety. The airline is alleged to be cutting corners and just like with KF, incidents are being covered up with clever PR. The story being told now is eerily similar to what we heard 5 years back with Kingfisher: runway excursions, illegal cargo and so on!

I can see some similarities in the PR department atleast lending some credibility to what the gentleman says: many of the (not using the word) who used to becho KF to media people are today doing the same for 6E. The script is also pretty much the same as are the tactics.

The allegation being made here is that 6E is repeating the game once played by KF: the only difference being this time using the LCC brand instead of the full service premium airline branding. But in essence the game is the same: gain market share through "loss leading" approach burning some cash (black money). Make it all back in the IPO that follows and once your money is made let the airline die a natural death.

There was an eerie sense of deja-vu in listening to this gentleman!

While i cant confirm the veracity yet since I am just collecting the data, I will agree whole-heartedly with role of media. Clearly media is being used to build PR case and this maybe with the IPO in mind(again not sure if they are actually doing this). But we are under pressure to constantly block out stories though this happens not just with 6E but also with other private airlines. Indeed that is part of the reason that I am sharing this story publicly.

But clearly after death of KF, 6E seems to have emerged as favorite of the powers that run the country!

I agree on the padding of schedules 100% (others do it too but not as much) to generate better OTP. Gonna try and replicate the convoluted routings.

Some more digging needs to be done in the other areas, some informal chats with staff etc maybe (who volunteers ), but i want to know more about InterGlobe and the founders - saw their branding at the entrance of the Ibis Mumbai airport hotel, so they seem to be into hospitality franchise operations as well. How are they funded??

No sector in India is probably squaky clean from corruption & black-white conversions - thats agiven IMO.

While you question the 6E's profitability in purely in terms of 'Operational Profit', there are other avenues that bring in income from 'non-core' operations of a company, that make the 'Net-Profit' positive.

Assuming that 6E makes losses while generating less revenue from its operations, while paying more or less the same charges or wages & salaries, we also need to factor-in the revenue they derive from the Aircraft Purchase & Lease-back side.

Having placed massive order with Airbus at the start of their operations and scheduling the delivery that ensures a new bird is added every month for the next few years, surely would have got them a bulky discount (at times upto 40 - 50%) on the aircraft list prices, and additional freebies in the form of winglets / sharklets can't be ruled out.

Once a bird is due for delivery, they negotiate 'Sale & Lease Back' albeit at a price higher than what they paid to Airbus.

Now, if they skim-off 5% in difference (Non-Operational Revenue / Extraordinary Income - Financial Jargon) of the USD 85 million, that's an income of USD 4.25 million or INR 22.95 Cr.

Imagine that amount, per aircraft / per month..!! Who the hell made money flying planes anyway..?

Quite simply, the line item costs are not really relevant unless considered on a unit cost basis. You can pay a pilot $25k/month, but if you get 100 hours of flying out of him you have a better unit cost for that pilot than by paying him $10k/month and only getting 20 hours out of him. When taken on a unit cost basis (CASK or CASM), Indigo's operating costs have been superior to the other carriers in the domestic market space.

I spend my professional life working with airlines around the world and analysing their performance. I saw Kingfisher's train wreck coming long before it became fashionable to jump on that bandwagon. I have not seen anything from Indigo that implies a similar house of cards. To the contrary, I have consistently seen positive indicators from them. Granted, I have not examined their books or operations closely, but information like this gets around very quickly in the relatively small international airline community.

Is it possible that this is simply a product of a PR machine? Perhaps, but the underlying model is a lot more solid than Kingfisher. To put it simply, Kingfisher could never have been successful with their business model. Indigo however can be successful if they execute theirs right. That alone should be enough to derail any meaningful comparison between them.

You raise some important points Mr.747. My question is whether there is any way to accurately know these details? I am flagging the basis for this assertion that their operating costs are superior to other carriers. A friend of mine who is a senior consultant for a company building and running an international airport, has access to some CASM/RASM and as per him Spicejet shows the lowest CASM of carriers today. He has similar figures for other carriers as well- in case of AI the figures are avail separately for AI Intl, AI Domestic and Alliance. But there are no figures for 6E except for feel good statements in the media. One of my staff did ask the question at a press conference, specifically flagging their claims of being profitable. It was the CAPA fellow who fobbed off the question by saying that 6E doesn't have to give these figures because its not a listed company.

Does anyone know about what the utilization of their planes and crew really is? We see their planes doing longer turnarounds than competition so clearly that goes out of the window! As for crew: what is the flight crew to airplane ratio currently? That would give an indication. And so on.

But the question really is: Why all the smoke and mirrors if they are really so profitable?

The second comparison to KF stems from their clever use of the media to mask shortfalls. There have been 4 incidents like runway overruns with 6E in the past month. How many know about it? How many covered it in the media? Do we remember these sort of things happening before with KF?

And for the record, the chemical cargo business also seems to have shifted to 6E.

The PR people are the same network as well! Its almost like the old KF team is making a fresh start under a new brand!

I have my doubts how long this "feel good" will last once the IPO is done and over with!

Accurately? Probably not. But no more or less accurate than any of the other carriers out there. It is not unusual for privately held companies in any sector to publish only selected results and to closely guard their books.

I don't know, it sounds awfully line an agenda-driven set of premises to me. And, unless I'm hallucinating (entirely possible) you've alluded to not being an Indigo fan several times in the past.

What's the point of the article anyway? And it's perspective? Because the conclusions too seem to have been decided already, with the fillers just there to take up room.

I've never flown Indigo (or Kingfisher for that matter) but by all accounts, the increasing number of people who do choose to fly them do so because 6E do exactly what they say on the tin : provide an efficient, reliable, largely nakhra-free means of getting from Point A to Point B. That is a rock-solid foundation to start with, something Kingfisher never had.

Interestingly - and this is my opinion only - it's Jet who have done Indigo one of the greatest favours by accelerated the acceptability of flying an LCC for so many people who wouldn't have done so as quickly if they weren't pushed in that direction by Jet.

have been forced to take a number of 6e flights this year, due to the unavailability of other airlines on a particular route, & i would have to agree on the padding bit....they seem to do it a lot more than other airlines....

so you never had the pleasure of the kingfisher experience????

i would have to agree with what you said....6e pretty much do what they promise to do....get you from point a to b with as little fuss as possible....that is something basic that kingfisher never understood....

Nope, never. No Kingfisher, Spice, Indigo, Go, Sahara. Not Emirates either (I must be the only one).

AI then?

I agree - based on my observation of passengers on Indigo flights - they just love the peaceful atmosphere on board...

As my comment above - and I have had to choose 6E when Jet decides to suddenly move their flights out of the slot I normally take...

- of course! (See his sig!)

Have to agree with the others here: 6E has learnt from others and picked up best practice:

- the aircraft deals they have are fab: their variable cost must be super low since they operate a very young fleet
- the sale and lease back must be a cash cow: simply because of the discounts
- the aircraft are well maintained, form what I hear from my MRO friends at SK the former 6E A320s they got are in very good shape
- they pay well but make good use of crews, hence the high costdoesn't matter that much. They had some serious issues in their first strong growth phase: read this thread over at pprune and get some popcorn

I really don't see how this can be a money laundering operation. Care to explain how that business model supposedly works?

6E is firmly in the LCC corner like Ryanair ... this is in no form or shape a KFA operation. Mallya modeled himself after Virgin Atlantic / Mr Beardie, which is making losses left right and center

It's little known but the majority of Indigo's pilots have had to pay for their own training via IndiGo's approved training partner (CAE). T he cost of training is massively inflated and I'm sure CAE and IndiGo take a cut. They also have a high turnover of staff because it means that costs are kept low as most staff do not move up the scales.

It is firmly in the low cost category.

I think the next move for Indian based LCC is to 'outsource' pilots and cabin crew. It is common in Europe where pilots and cabin crew sign up as 'self employed' crew with an agency who provide them to their customer airline and the crew are paid per flying hour.

It is one of the reasons why I avoid LCC carriers in Europe. I do not wish to be flown by a 20 year old who is overworked and underpaid.

The market is moving away from a merit based industry to one with 'whoever has the most money will go far' industry.

I doubt that. A fellow German FTer got his type rating on A320 and couldn't find a job for love or money in the area. He is flying in Indonesia right now, even that was a struggle.