Indian Airline NEWS: IndiGo Airways: India's hottest low-cost carrier

NEW DELHI, India — India's IndiGo Airlines may be the world's hottest low-cost carrier. But the company's lightning fast sprint to the top of the food chain offers something else for market watchers: a new spin on the so-called "bottom of the pyramid."

This month, close on the heels of the record-setting, $15.6 billion purchase of 180 passenger jets from Airbus, IndiGo topped state-owned Air India to become the country's second-largest carrier — matching liquor baron Vijay Mallya's full-service Kingfisher Airlines with an 18.6 percent share of the market. It also announced it would start international service with flights to Singapore, Bangkok, Dubai and Muscat this summer.

Since 2008, when the company booked its first profit even as high fuel prices and the economic downturn ravaged its competitors, IndiGo's net income has grown more than five times — from a shade under $20 million to more than $120 million. And the Center for Asia Pacific Aviation reckons its one of the hottest airlines to watch in 2011, saying, "Airports in the Indian subcontinent, Gulf and Southeast Asia take note: IndiGo is coming."

With Boeing forecasting that Indian air traffic will grow 15 percent a year over the next five years and that India will require more than 1,000 commercial jets over the next 20, according to the Wall Street Journal, that may just well make IndiGo the fastest growing airline in the world's fastest growing aviation market. And questions about how it will pay Airbus for all those shiny new planes — which will be rolling in until 2025 — has already boosted excitement about a possible IPO.

But it's the secret behind the five-year-old, low-cost airline's meteoric rise that's most intriguing.

Like Tata Motors did with the much hyped, sub $2,500 Nano, IndiGo used the promise of India's huge, untapped market to lure partner organizations into offering bargain-basement prices — which was key to the low-cost airline's initial purchase of 100 A-320 jets from Airbus in 2005.

But where Tata has stumbled at the bottom of the pyramid — the late business professor C.K. Prahalad's term for the largest, but poorest segment of consumers — IndiGo redefined the low-cost model to compete for business with full-service carriers by offering more than cheap tickets.

"IndiGo's investment in the training of its staff and its [aircraft] fleet killed whatever difference might have existed between an LCC and a full-service carrier," said Kapil Kaul, South Asia head of the Centre for Asia Pacific Aviation. "The service is the same, the planes are all new, the buses are brand new."

Thus, while Tata struggled to sell the Nano to the lower middle class, first-time car buyers it targeted — partly due to bad publicity surrounding a few vehicles catching fire — IndiGo was able to turn regular business travelers into loyal customers because it never acted like a budget airline.

From the beginning, its purchase of all new aircraft helped it avoid maintenance problems, and superior planning helped it to match or exceed the on-time performance record of its full-service competitors — even though rapid turnaround of its planes was the key to the company making money.

According to India's Directorate General of Civil Aviation (DGCA), in 2010 IndiGo topped market leader Jet Airways with an on-time performance record of 85 percent — though Kingfisher notched 86 percent — and beat out its nearest low-cost competitor by a substantial margin. Moreover, thanks to its first big order of new planes, it had the lowest flight cancellation rate of any Indian carrier.

"The first order of 100 aircraft [from Airbus in 2005] was game-changing. They got a wonderful order, and a good price that gave them the leverage that a startup carrier requires," said Kaul, citing the superior maintenance support that the purchase gained them from engine and airframe manufacturers. "That [big one-time buy] ensured they became part of the manufacturers' business model." With the recently announced purchase of 180 more A-320s, the company is set to increase its advantage.

But IndiGo also went beyond the basics to reinvent the first-time flyer segment. When Air Deccan, the pioneer low-cost carrier in India, acquired by Kingfisher in December 2007, was struggling to fight the impression that their planes operated like public buses with wings, IndiGo pushed best practices even when there was no compelling reason to do so.

In a country where other carriers shared passenger-stair vehicles and the top airline still had to have disabled passengers carried up the staircase to plane height by ground crew, for instance, IndiGo brought in larger, handicapped accessible passenger ramps from day one. Similarly, the company equipped check-in staff with hand-held scanners that allowed passengers without baggage to avoid the dreaded scrum at the counter. And at least in the beginning, flight attendants manning the beverage carts addressed even lowly economy class passengers by name (with the aid of the seating chart).

"They've been way ahead of the other LCCs in terms of public perception for reliability and reputation," said Ajay Prakash, president of the Travel Agents Federation of India. "I, too, would recommend IndiGo over the other low-c