Air India Disinvestment: IndiGo, IndiGoing, Will IndiGet? | SPJIMR

Air India Disinvestment: IndiGo, IndiGoing, Will IndiGet?

Thursday, July 6, 2017

History was made when Lenovo acquired IBM's personal computer (PC) division in 2004. IBM, pioneer in computers from the US, is an 82year-old giant. The Chinese Lenovo had been around for only 20 years. Currently, Lenovo leads in the PC space with the largest market share of 21%, ahead of HP and Dell.

IndiGo is dreaming a similar dream. The young low-cost carrier that started its operations in 2006 has emerged as the first serious contender for Air India (AI), a 70-year-old government-owned airline.

As soon as the Union Cabinet gave an in-principle nod to the strategic disinvestment of GoI's stake in AI, within less than 24 hours, IndiGo wrote to the government of its intent to buy the airline. IndiGo is the country's largest passenger airline with a market share of 41.2%, while AI's market share is at 13%. A lot remains unclear. Will GoI bite the bullet and exit AI with a 100% sell-off ? Or will it sell only partial stake and exercise the option of a 74% or a 51% stake sale? How will GoI handle the debt of 52,000 crore?

Will there be some write-offs to make the deal sweeter for the buyer? And is IndiGo's dream realistic? IndiGo has successfully built its brand in the oligopolistic airline industry on three platforms: low fares, on-time performance and courteous service. IndiGo geared all the energies of the organisation towards making operations simple and has built its brand around the `on-time' theme with a low marketing expenditure.

But can IndiGo turn AI around? The answer is complex. International access to the AI network is the most lucrative aspect of this deal for IndiGo.Though IndiGo operates 900 flights daily, connecting 46 destinations, 39 of them are domestic, and only seven international. AI connects 89 destinations and about two-third of its revenue comes from the international segment.

AI's share in international traffic among Indian carriers is 44%, compared to IndiGo's 9%. The intangible benefits of Star Alliance in the international operations would make the deal sweeter. AI joined Star Alliance with effect from 2014, providing global connectivity to the airline: 1,269 destinations in more than 193 countries.

AI has prime slots for take-off and landing at London's Heathrow and some other airports in the US and Europe. It also has access to aircraft parking and hangar facility in most of the important domestic and international airports. IndiGo has been using a single aircraft, the Airbus A320, with the same configuration to achieve operational efficiency. It saves the hassle of training pilots and crews for different aircraft. IndiGo's fleet size is 135 carriers. AI, on the other hand, has aircraft from Airbus and Boeing with different configurations. AI's fleet size is 116. A merger may add to the complexity, as fleet management and manpower management may become complex.

IndiGo achieved the lowest turnaround time and the highest passenger load factor, leading to higher revenue and higher profits. This enabled it to offer low fares and increase its market share. IndiGo has instituted some of the best practices in human resource management. Being courteous and hassle-free starts with being a hassle-free place to work.

Ten years in a row, IndiGo continues to be among the best companies to work for in India. It is not surprising that IndiGo has a zero attrition rate.

The work culture in AI, which has remained in the public sector for a long time, will differ. More than the financial management, it is people management and cultural integration that have proved to be the toughest aspects of mergers and acquisitions.


Originally published at:

Media Source: 
The Economic Times (July 6, 2017)

Bhavan's Campus
Munshi Nagar | Dadabhai Road,
Andheri West | Mumbai - 400 058, India
Tel:+91-22-2623-0396/ 2401

Delhi Centre
Bharatiya Vidya Bhavan Campus, 3rd Floor
Gate No. 4, Copernicus Lane
Kasturba Gandhi Marg, New Delhi-110001
Tel: 8130545577, 011-23006871, ext-871