Indian LCCs, global narrow-body ambitions: Part 3

The first part of this three-part series looked at International ambitions of Indian LCCs with narrow-body aircraft and the basis for selecting its hub. The second part covered Spicejet and its proposed hub at Ras Al Khaimah. The last part of the series looks at IndiGo – India’s largest carrier by fleet and domestic market share.

IndiGo has diversified its fleet. The mantra it took to the market during 2009 – 2012 while countering Kingfisher’s fall was – single type of aircraft with same configuration to swap planes, reduce training costs. IndiGo has now gone away from each of it. The airline would eventually have two configurations each for A320, A321 and ATR72-600.

When the airline made the surprising announcement of inducting the ATR72-600, it had said that airlines who operate two aircraft types on same routes face challenges with disruptions and it intends to keep the two networks separate. Times have changed and so have the people at the top in the airline. There are quite a few sectors in IndiGo network where the airline operates both Airbus and ATR. Heading the Jet Airways way in confusion? We will know in next few years!

On this backdrop, a look at what the A321XLR means, the hub strategy and narrow-body to Europe with IndiGo.

A321XLR

End of October, IndiGo placed an order for 300 A320neo family aircraft. 213 of these 300 are the A321neo and some of them, the A321XLR. While this aircraft still does not allow the airline to fly non-stop to London, it would allow the airline to open new routes from India.

IndiGo could look at operating the A321XLR comfortable to Athens, Bucharest, Kiev, Budapest, Warsaw, Manila, Bali and more from New Delhi – the largest market in India. Indeed, this looks surprising right now, but we are talking of these operations in 2024 or later. Its only recently that India has seen connectivity to Azerbaijan, Ukraine or Poland. There is enough time for markets to develop, by when incomes would go up, open new vistas, visa free regimes and a lot more which is favorable for the Indian tourist. The size of the aircraft is just right for any of such long routes.

The exact count of the sub-type could well be variable and with a large customer like IndiGo, Airbus would show even more flexibility and the airline would have time till later in the order cycle to decide the exact count. However, with this order – the intention of the airline is clear; increased seats, longer range.

Four sides – four hubs

IndiGo seems to be moving to four sides – four hubs theory. Starting with Kolkata, the experiment could be replicated across other cities. While the airline has a large presence in Delhi, it has chosen Kolkata over Delhi for this strategy. As it looks, it could be due to the restrictions on its A320neo family aircraft and the nature of the airport. While most routes from Kolkata would be non-ETOPS, a certification which lets the aircraft fly for longer hours away from an alternate airport, the other reason is the airport infrastructure. IndiGo operates across all three terminals at Delhi with the international flights being from Terminal 3. At Kolkata, with an integrated domestic and international terminal building – transit is much simpler, and IndiGo can sell tickets where the minimum connection time is much lesser than that at Delhi or Mumbai.

The airline recently launched flights to Yangon, Ho Chi Minh city, Hanoi, Chengdu from Kolkata. With flights from multiple destinations within India to Kolkata, the airline has an effective hub, where passengers have limited layover.

A hub within India comes with its own challenges though. Vietnam, for example, has maximum traffic to Delhi, followed by Mumbai. The traffic from Kolkata is not significant enough and passengers from Delhi and Mumbai have multiple options to Vietnam via Thailand, Malaysia and Singapore and Indian’s so far have loved the full service on international flights. But is the airline thinking of a little from everywhere rather than a lot from one place? The map below depicts what could be the network from Kolkata – present and with some future destinations put in. These future destinations have not been announced by IndiGo and is a calculated guess.

 

Similarly, the southern hub could come up either at Chennai or Bengaluru. While Bengaluru has capacity coming up and higher yields than Chennai, certain destinations like Bali could be a stretch for Bengaluru, since it is already in the outer range of the current fleet.

Mumbai could see the western hub with flights to Nairobi and Addis Ababa along with the middle east and Delhi could see a very strong hub come up which could potentially see a good number of international to international (I-I) connections – coming in from Moscow, Almaty, Tashkent, Istanbul and go to Singapore, Kuala Lumpur, Phuket, Bangkok. The I-I connections as they are called will be at same terminal, without having to go through immigration and that gives the airline a competitive edge. However, these routes have competition in proportion to traffic and IndiGo would have to fight it out – something which it is not averse to.

All these five cities have good red-eye and day connectivity from other cities – both metro’s and non-metro’s which offers optimum connection times. The four sides – four hubs strategy’s success (or failure) at Kolkata will define the way forward for the airline on how quickly it can replicate the model or if it will revisit the concept.

This is a concept which is hitherto untried, but then no airline in India has touched a fleet size of 250 aircraft in the past! What got the airline here, may not get it to the next level.

A hub to Europe

Something which IndiGo has been exploring and has admitted publicly is the ambition to reach London. The CEO has been candid in admitting that the wide body operations could bleed the airline. While the airline has filed for slots at London Heathrow, London Gatwick, London Stansted and Manchester with 341 seat A330-300, the probability of the airline ordering the wide body aircraft is low. IndiGo may wait to see what happens to Air India before taking steps.

The airline has explored a one-stop service to London in the past, even filing for it and securing slots last season. News reports have indicated that the airline will start operations from Tbilisi from Q1 of CY-2020.

Tbilisi or Baku?

Tbilisi, the capital of Georgia is 3250 kms away from New Delhi, lesser by about a thousand kilometers to Istanbul where IndiGo flies and has faced load penalty due to head winds leading to baggage woes for passengers. Tbilisi to London is another 3500 kms, which makes Tbilisi an ideal transit hub. The other option is Baku – the capital of Azerbaijan, in similar range but with slightly better infrastructure. The air services agreement between India and Azerbaijan allow 7 weekly frequencies, while the one with Georgia allows 21 weekly frequencies which would tilt the decision in favor of Tbilisi.

How will the transit hub work? Imagine something like what Jet Airways did at Amsterdam. Fly passengers from Mumbai, Delhi and Bengaluru and take them onwards to Toronto themselves and offer connections on partner airlines network at Amsterdam. IndiGo could operate to Tbilisi from 3-4 points in India and operate one flight to London, Frankfurt, Paris and another destination. What is missing in this case is the “partner airline”. While Tbilisi has Georgian airlines as a hub carrier, it has only 9 aircraft and operates to 22 destinations – most of them not daily. Baku on the other hand has a stronger carrier in the form of AZAL which has 20 aircraft, operating to 36 destinations. But these destinations overlap with the destinations which IndiGo is offering via its codeshare with Turkish Airlines.

The major difference would be ability to secure fifth freedom rights. Can IndiGo carry traffic from Tbilisi to London, Frankfurt or Paris? There is one flight per week to London, two to Paris and none to Frankfurt, currently from Tbilisi. However, the caucuses are not the most stable of regions geopolitically. Russia has banned flights to Georgia and advised its citizens to not travel to the country amidst tensions over Abkhazia and South Ossetia regions. Azerbaijan on the other hand is headed for snap elections and has unsettled territory issues with neighboring Armenia.

Network Thoughts

The four sides – four hubs strategy is full of challenges, but then which strategy isn’t? A cursory look over fares shows that network carriers like Cathay Pacific, Thai Airways, Malaysian Airlines and Singapore Airlines have tweaked pricing to battle IndiGo. Nobody, including IndiGo, welcomes competition with open arms. The strategy will face severe headwinds, especially after Vietjet starts non-stop flights to New Delhi from Ho Chi Minh City and Hanoi. But international is a long-term game and unlike domestic where passengers follow capacity, it takes time to stabilize and reap rewards. All depends on how long IndiGo wants to sustain.

One benefit of a Kolkata – Vietnam flight over Delhi – Vietnam flight is the smaller stage length leading to lower losses. The trip cost is much lower than that from Delhi and helps sustain for a longer period.

The one-stop to Europe would become a tech-stop if the airline doesn’t get rights to sell Tbilisi to EU flights. Either ways, the competition is stronger to Europe with the likes of Emirates, Etihad, Qatar who offer one-stop options in better comfort. While the wide-body aircraft would require Business class seats to make it profitable, the same may not be true for narrow-body.

Tail Note

IndiGo has cash and it has aircraft on order – both important things in aviation industry. When it first placed a large order, I had thought aloud if IndiGo will think of setting up a subsidiary in another country? On the lines of AirAsia group? The disagreement amongst the promoters will keep this option away for a while.

While things boil down to costs, sometimes they also boil down to comfort. The slimline seats are not comfortable for a long domestic flight. When it comes to international leisure traffic, Indians have been synonymous with Alcohol, food and large suitcases on flights and with everything being charged – IndiGo will find the going tough. Even AirAsia has a USB charging stations on each seat in the airlines recently inducted A321neo, it is time IndiGo thinks of such a thing.

There is one question that has kept lingering in my mind, if IndiGo has moved away from its fleet model and a lot more, why is it so adamant about not having ovens on board?