Taking Wing: Learning from Indigo and Akasa Air

What does it take to start and grow a business in a sector as challenging as civil aviation, with all its regulatory complexities, infrastructural constraints and price-sensitive consumers? What lessons can other industries draw from the experience of IndiGo, India’s largest and most profitable airline, which, through relentless innovation, managed to carve out a niche for itself? How is the entry of Akasa Air, the ‘new kid on the block,’ reshaping an already turbulent sector? Aditya Ghosh, a seasoned business leader with over 22 years of experience and Co-Founder of Akasa Air, who previously spent a decade on the Board of IndiGo, answered these questions at a recent session of the India CEO Forum in Delhi.

A Long View Of India’s Aviation Sector

Several factors will continue to drive the global aviation sector, including supply-chain disruptions, geopolitical risks, energy-market dynamics, trends in inflation and the advent of digital and other disruptive technologies. Meanwhile, the Indian aviation market is slated to become the world’s largest by 2047, growing at ~2.5x the rate of the global market. Pushing it forward are steeply rising incomes and the continuous influx of young workers into the job market. On net, it is rising at about twice the rate of GDP growth – unlike in more mature markets, where the correlation is closer to 1x.

From just 110 airplanes in 2005, India’s flying fleet has grown to about ~400 – still very low for a population of 1.3 billion. Comparatively, the US, with a population of 330 million, operates a fleet of 7,000 airplanes. With passenger traffic expected to increase at over 15% a year for the next 15-odd years, even maintaining the current (very high) load factors will mean having to add hundreds of new aircraft – which is what explains the huge orders placed by Air India, IndiGo and Akasa. However, even with all of these new planes, which will come on-stream over the next decade, there will remain a significant demand-supply gap, making for large market opportunities. Supporting growth are the government’s big infrastructural investments, which have removed a major bottleneck. From an investor perspective, massive demand, pricing discipline, competitive cost structures and execution strength all contribute to the sector’s attractiveness.

Why Do Airlines Fail?

Being customer-centric is important but giving  customers what they want over what they need is a recipe for disaster. Customers may want luxuries like separate check-in counters or discounts for frequent flyers; more comfortable seating; and amenities such as newspapers and food, but few are willing to bear the additional costs these entail. Conversely, when an airline fails to address basic customer needs, such as ensuring on-time departure and arrival, these same aspects often go unnoticed. Focusing on the ‘unglamorous’ but vital components helps ensure relevance, growth and sustainability. In general, however, the main factors that drive an airline to failure include capacity indiscipline; inadequate capitalisation; and uncompetitive cost structures.

What Sets Akasa And IndiGo Apart?

Over the last decade, most Indian airlines have incurred persistent losses. In contrast, IndiGo has remained profitable – the result of its strong on-time performance, unparalleled network, and most of all, its ability to maintain one of the world’s lowest cost structures while paying some of the world’s highest fuel prices. In its brief, ~18-month existence, Akasa Airlines has steadily improved its financial performance and will soon be profitable. By focusing meticulously on the smallest details, both airlines have managed to attract a growing base of loyal customers.

Akasa’s success is the result of its strong employee centricity, focus on customer excellence, exceedingly low cost structures and uncompromising safety standards. For Akasa, external brand values seamlessly align with internal cultural values, reducing its likelihood of failure to nearly 0%. Its emphasis on ‘on-time performance’ extends beyond punctual flights to encompass timely salary pay-outs, meetings, hiring and more. Sustainability is deeply embedded its its culture, evident in the fact that crew uniforms are made from recycled waste. This deep synchronisation between external branding and internal culture contributes to a resilient operational framework.

The Road To Business Success

The essential components of success for any organisation are scalability, financial stability, a clear purpose, customer-centricity and agility. Ensuring consistent standards and avoiding complacency are key as a business grows in size and scale. Recognising that customer needs constantly evolve, businesses should strive to remain the preferred choice even in a market with multiple options. Another key factor is leadership, as any shift in this regard can steer the organisation towards a very diverse path. Finally, while the organisational culture may evolve over time, it is vital that the core values persist, enabling the business to navigate transitions, both internal and external, more readily.