Indigo Braces for Turbulence As Bosses Differ on Airline Expansion

Barely a month after cash-strapped Jet Airways was forced to operate its last fight, fresh trouble seems to be brewing for Indigo, say reports. According to The Economic Times, “serious differences” have emerged between Indigo promoters Rahul Bhatia and Rakesh Gangwal, over the expansion and long-term strategy of the country’s largest airline. Consequently, the two parties have engaged law firms to resolve the differences in the shareholders clause.

But what is the exact nature of these differences and how is it likely to have an impact on India’s aviation market? here’s what we know so far.

Who is Involved?

Before we get to the “serious differences” let’s look at the top bosses between whom these rifts have reportedly appeared – Rahul Bhatia and Rakesh Gangwal. Bhatia is one of the founding members of the airline and presently owns 38% of Indigo’s shares. Gangwal, on the other hand, is an United Airways veteran, who owns around 37% shares in the airline. The two had come together in 2006, forming Interglobe Aviation, better known as Indigo.

While Bhatia took care of Indigo’s domestic operations and was the airline’s face in India, it was Gangwal who was behind the rapid fleet expansion of the low-cost carrier and it’s global operations.

So, if responsibilities were divided and roles well-defined, why did the two come to reported a disagreement?

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What’s the Dispute About?

According to a report by The Indian Express, fissures appeared within the management after CEO Aditya Ghosh quit the airline in April 2019. But why did Ghosh quit?

  • Aggressive Expansion Vs Cautious Approach

The Economic Times reports that Rakesh Gangwal had been extremely ambitious about Indigo’s expansion, which partly resulted in the airline placing huge orders.

The report also mentions that in the financial year 2019, Gangwal wanted to increase Indigo’s capacity by over 50% . In order to achieve this, he wanted to increase the airline’s fleet size from 155 to 250 aircrafts. But Gangwal’s suggestion was opposed by many within the management, including Ghosh, who left soon after.

Although there’s no concrete proof as to who favoured Indigo’s rapid expansion and who didn’t, aviation expert Jitendra Bhargava believes that the answer to the airline’s grown was to keep expanding.

“In 12 years, Indigo has become the largest player in India’s domestic market. But, do you call it a global player? Do you count it among Singapore Airlines, Quantas, BA or Air France? the answer is no. Indigo has a market share of over 40%, but still doesn’t fly to US or Europe. So, its natural for an airline like it to look at expansion,” Bhargava said.

  • Appointment of Expats

Following Ghosh’s exit, key positions in the management were filled with expatriates. A major portion of these top-level appointments were made by the Gangwal camp, reports The Indian Express .

"“Over a period of two years leading to Ghosh’s exit, expatriates had joined the airline across various roles including Wolfgang Prock-Schauer as chief operating officer, Willy Boulter as chief strategy officer, Michael Swiatek as chief planning officer and Jason Herter, vice-president, operations control centre and dispatch. Currently, Dutta who is the CEO and Rohit Philip, the chief financial officer of IndiGo are former United executives among the top management positions at the airline.”" - The Indian Express

Reports say that while Gangwal was in favour of rapid expansion, both in terms of fleet and global operations, Bhatia preferred to tread carefully. This mismatch, between vaulting ambition and go-slow approach, combined with insecurity of Gangwal becoming too powerful, could have culminated into a major differrence of opinion between the two bosses at Indigo.

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  • Narrow Vs Wide-Bodied Aircraft

Another point of contention between the two, reports The Economic Times, is over the choice of aircraft for international operations. Generally, an airline that wants to expand long-haul international operations, has a number of wide-bodied aircraft like Boeing 777, 787, Airbus A 330, A 350 and so on. These aircraft not only carry more passengers as compared to narrow-bodied aircraft, but are also suitable for long-haul flights as they don’t have to make stopovers for re-fueling.

Since Indigo only operates a fleet of Narrow-body aircraft (Airbus A-320 AND a-321), it would require a number of wide-bodied aircraft to be successful in its distant, global operations. According to the ET report, while Bhatia is in favour of wide-bodied aircraft, Gangwal is a proponent of maintaining a fleet of narrow-bodied aircraft, preferably from the same manufacturer.

But the choice of aircraft for international operations varies from one destination to another, explains aviation expert Amrit Pandurangi. “While you could fly with a smaller narrow-bodied aircraft to Sri Lanka or to the middle-east, flying to the US or to the Europe with the same narrow-bodied aircraft becomes un-economical,” he said.

A Year of Lows

Data released by Interglobe Aviation for the third quarter ending in December 2018 shows that the airline suffered a 75% drop in profit on a year-on-basis, to the tune of Rs 191 crore. The Airline had posted a profit of Rs 762 for the same period in the previous year.

Further, in the second quarter ending in September, the airline had posted a loss of Rs 652.10 crore. The airline had attributed this loss to high fuel prices and currency depreciation.

Results for the fourth quarter ending in March are yet to be released.

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What Does the Rift Mean?

According to Jitendra Bhargava, it is difficult to assess the exact impact of the reported disagreement, since there’s little information on rift in the public domain. However, he maintains that since Indigo has an edge over other airlines in filling the Jet Airways vacuum, it must resolve all disputes as soon as possible.

"“Since Spicejet has acquired some of the grounded Jet Airways aircraft and requited its crew, it will take some time for the airline to settle down. The airline who can make the most of it is Indigo. Hence, its must resolve whatever differences have appeared to ensure that the airline keeps growing.”" - Jitendra Bhargava

Asked what will happen if the disputes aren’t resolved, Bhargava added that it will hamper Indigo’s progress, but not to a substantial point. “No other airline has the cushion to capitalise on growth, since Spicejet is saturated with new aircraft from Jet, ” he added.

Should the bosses at Indigo patch up, the airline will continue to grow ambitiously. Hence, it is in the interest of Interglobe to resolve this dispute quickly, Bhargava concluded.

Here’s Indigo’s official response to the controversy:

"“I am sure that you are all aware of the press reports regarding alleged disagreements between our two promoters Mr Rahul Bhatia and Mr Rakesh Gangwal. I want to assure you that the growth strategy of the airline remains unchanged and firmly in place, and the management is fully charged by the Board to implement it. We will continue our focus on creating value for all our shareholders, our customers, our employees and the communities we serve. Thank you for your dedication to our values of safety and courteous, hassle free service to our customers.”" - Rono Dutta, Indigo

(With inputs from The Economic Times and The Indian Express)

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