How India’s top airline unraveled in quest for higher profit

(Bloomberg) — On the evening of Dec. 2, just three days before India’s largest airline lost control of its operations, IndiGo executives discovered a technology glitch that was delaying late-night check-ins; this minor glitch would quickly turn into one of the worst aviation disruptions in the nation’s history.

The issue was affecting the pilot duty roster, which had recently been tweaked to include new government rules mandating longer rest hours and fewer night landings.

Hit by winter schedule changes, air congestion and adverse weather conditions, the math suddenly didn’t make sense for the low-cost carrier, whose ruthless optimization had allowed it to turn a profit within three years of its inception and capture nearly 66% of the Indian aviation market over time.

The resource efficiency instincts ingrained in IndiGo’s DNA had led to a severe underestimation of the redundancies required to comply with the new pilot rest rules, even though carriers had almost two years to prepare since the guidance was first announced in January 2024.

Scheduling changes began to snowball: IndiGo canceled at least 70 flights on December 3, then 300 flights on December 4, and finally over 1,000 flights on December 5; this was about half the flights it normally operated daily.

As thousands of angry passengers were stranded at major city airports over the weekend, Prime Minister Narendra Modi’s government was forced to suspend new pilot rest rules, suspend fare caps and order more trains to operate to prevent price gouging.

On Sunday, the country’s aviation regulator also demanded that IndiGo Chief Executive Pieter Elbers explain this serious disruption within 24 hours and explain why action should not be taken against him for “significant errors in planning, oversight and resource management”.

This account of how IndiGo’s operations unraveled is based on interviews with six people with direct knowledge of the events who were at the height of the chaos last week and asked not to be named due to the sensitivity of the situation. The company did not respond to a request for comment.

This debacle now threatens IndiGo’s position in the industry and its ambitious expansion plans.

After consolidating its dominant position in domestic skies, IndiGo increased its footprint abroad, ordered more Airbus jets and added business class seats. Earlier this year, Delta Air Lines Inc. signed a codeshare agreement with Air France-KLM and Virgin Atlantic Airways.

Flight cancellations plunged parent company InterGlobe Aviation Ltd. by 9% last week, marking the company’s worst week since Elbers’s 2022 inauguration. Despite the decline, shares have nearly tripled since the Dutch executive took over as CEO, far outperforming the Sensex’s 49% gain and the 8.4% rise in the index tracking Asian carriers.

Last week’s events, just six months after the Air India crash in Ahmedabad that killed more than 260 people, marked the beginning of one of the worst years for the Indian aviation industry.

The fact that one carrier has brought national air traffic to a near halt underscores the danger of India becoming too dependent on industrial giants to be shaken.

“This airline needs to be the market leader with outstanding management,” said Mark D. Martin, founder of India-based aviation consultancy Martin Consulting. “This will cause huge damage to the airline. They have lost their credibility.”

It represents a major fall from grace for a company that has become a business school case study for its profitable, lean operations in an industry notorious for cash burn and bankruptcies.

IndiGo’s tightly run operations are built on a strategy of turning around flights quickly and pushing every asset (human or machine) to its limits. It flies only one aircraft type, the Airbus A320s family of jets; a standardization that reduces pilot and crew training, maintenance, and parts inventory costs.

IndiGo Standard Time

There is equal focus on reducing time spent on the ground, with the carrier dubbing its punctual reputation as ‘IndiGo Standard Time’. Flights have a four-zone system for quick boarding, and crews open all exit doors to get off the plane faster.

No efficiency is too small: Flight personnel have switched to a faster method of weighing sandwiches — the best-selling items on the plane — instead of counting them, people familiar with the matter said.

So when Airbus last week ordered an urgent software fix that led to flight delays and cancellations around the world, IndiGo completed the update on all its jets within 24 hours.

This modus operandi has reduced the turnaround time for an IndiGo jet to 20 or 25 minutes, compared to the industry average of 45 minutes. This meant that more flights could be squeezed in over the years.

“IndiGo’s operations are so tightly knit that one flight cancellation will impact at least six flights,” said Shakti Lumba, who was IndiGo’s chief operating officer when it first launched in 2006.

Lumba said the carrier’s highly optimized operations were developed when it had only 100 to 200 aircraft, less than half the size of its current fleet. These now need to be reviewed to allow for greater system redundancy, especially in manpower planning, he added.

lack of slack

The lack of slack in the system became very apparent last week as planning failure gradually increased throughout operations. Sources familiar with the matter said that a plane with three cabin crew members took off for another flight and then got stranded. An IndiGo pilot was stranded in his hotel in the Middle East for days, waiting for his return flight schedule.

Ground staff were frightened by the angry crowd of passengers and could not even retrieve their check-in luggage, which was stuck on the grounded plane.

Indian authorities are furious at the carrier and are now moving to quell public anger by tightening scrutiny around the carrier, people familiar with the matter said. This also casts a poor light on the country’s aviation infrastructure, which the government wants to rapidly develop.

The new pilot duty rules were suspended after IndiGo requested a two-month postponement. Flight tickets were limited because the tickets of rival airlines increased 10 times. Even the state-run Indian Railways added four special trains and 116 coaches to transport the stranded pilots.

The situation is stabilizing: there were around 850 fewer cancellations on Saturday, and the airline said on Sunday it was “confident” operations would stabilize by December 10. But observers expect the crisis to trigger some fundamental changes in the industry.

Mumbai-based independent market analyst Ajay Bodke said it was dangerous for an airline to have such a high market share.

In the US and China, other aviation markets larger than India’s domestic market, no carrier has more than a quarter of the market share.

“The defiance of government regulations was announced months in advance and now a two-month delay is being requested at the last minute to comply,” Bodke said. “This is not inefficiency, this is willful negligence.”