February brought both good and surprising news from IndiGo. IndiGo, the country’s largest airline with a domestic market share of 53.5%, came back in profit in the December quarter, breaking a seven-quarter streak of losses. Then came the surprise, Rahul Bhatia, one of the two co-founders of the airline, took over as its managing director with immediate effect for a tenure of five years. Surprisingly, Bhatia’s tenure as CEO was a halt in 2018, and he is not involved in the day-to-day operations of other companies that run IndiGo’s parent InterGlobe Enterprises. The holding company has presence in hospitality, travel commerce, airline management, aircraft maintenance and engineering, and advanced pilot training.
This is not the first time Bhatia has held a managerial position in an airline he co-founded with Rakesh Gangwal. He stepped down as the chief executive of IndiGo for a few months after Chairman Aditya Ghosh stepped down in July 2018. Subsequently, Gregory Taylor was named as the new interim CEO.
Bhatia’s move is being seen as a win over corporate governance in IndiGo between his public in the aviation sector and Gangwal. Last year, the two had an agreement, which was approved by the shareholders in December. However, Gangwal is actively involved in the airline. Together they own the majority of the airline’s shares.
But there are business reasons for Bhatia to take over as managing director of IndiGo. First, the airline is gearing up for competition. Air India’s move to the Tata group may not be an immediate challenge, as it is a full-service airline, while IndiGo is a low-cost airline. Bhatia is rolling up his sleeves to prepare IndiGo for Akasa, the ultra-low-cost airline that will enter the market this year. Furthermore, the buzz of Jet Airways taking to the skies too soon refuses to fade, although the likelihood of it happening any time soon seems negligible, given the scale of the airline’s problems in April 2019 due to the cash crunch. looking at.
Akasa is backed by billionaire Rakesh Jhunjhunwala, who has deep pockets. IndiGo would naturally like to be in a position to respond quickly on its ticket pricing strategies. Air travel is price sensitive. Indigo would like to avoid losing passengers to Akasa, should it start a price war. The price wars adversely affected Kingfisher and Jet Airways in the past, with both airlines grounded in heavy losses.
IndiGo’s advantage is its healthy cash reserves, so it will be in a position to respond quickly to ticket prices when needed. Till December 31, IndiGo had 7841.1 crore free cash and 9,504.8 crore restricted cash.
Second, IndiGo’s business model has become increasingly complex with its operations spanning diverse sectors: domestic, international, regional ATR, international long haul, code-share and alliances. Industry veteran and co-promoter Bhatia is apt to manage these complexities. As competition intensifies, Bhatia as the public face of IndiGo signals to the industry that the airline is well prepared for the changed market conditions.
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