IndiGo’s regional connectivity plan to skip unserved routes

IndiGo appears to have tweaked its strategy to run on a single-aircraft configuration (A320) in order to prune its costs. But it is replicating its time-tested model to enter regional routes through the launch of its 24 non-stop ATR flights on December 21.

Unlike its rivals that are leveraging the government’s regional connectivity scheme (RCS) by flying into unserved and underserved markets and building them from scratch, IndiGo is flying its ATRs to cities that are well connected by air and have a running airport.

Under the RCS, the winning bidders for a route are provided subsidy and three-year exclusivity in return for low fares of ~2,500 an hour for a limited number of seats.

The new stations where IndiGo will fly, to begin with, include Tirupati, Vijayawada, and Rajahmundry, all of which are connected by airline services. It will also fly ATRs to cities like Mangaluru and Nagpur, where it already flies its Airbus 320.

The plan is to go to seven new cities by the end of December next year, when it will have more than 10 ATRs. Apart from the south, the cities would be in Madhya Pradesh, eastern Uttar Pradesh, and Maharashtra, among others. To start with, it will use three ATRs, going up to seven by March.

But what IndiGo is doing differently is threefold. First, it is dropping airfares on these routes by up to 50 per cent of what competitors are offering (competitors, analysts say, have high margins on these routes), and this will force a price war and has started with an inaugural fare of ~999.

Second, it is connecting some of these places through a direct flight instead of the currenthoppingflightofonetotwostops. For instance, it will be the first to connect Bengaluru and Tirupati or Chennai and Mangaluru directly, while competing airlines have one or two stops on the way.

Third, it is introducing a substantial number of flights at each station it opens, so that it can amortise its costs over more passengers.

So for instance, it has deployed eight flights from Tirupati to Rajahmundry and vice versa.

Also, it is connecting the new stations to multiple cities in one go. Tirupati will be connected to Bengaluru, Chennai, and Hyderabad through direct flights, creating a buzz in the local market.

The ATR strategy replicates its LCC (low-cost carrier) model as IndiGo, despite having a fleet size of 141, flies to only 39 destinations of the country’s 74 cities connected by air. That is lower than the number of cities which rival SpiceJet flies to even though it has a third of IndiGo’s market share. That is because it prefers to milk a route by flying to each destination more frequently, helping the airline to dominate the market and reduce its cost.

Cost reduction has prompted IndiGo’s choice of the ATR72-6. Insiders say that while the prices of most turboprops are similar and their capacity more or less the same, ATRs burn 20 per cent less fuel. But they also take 10 minutes more per hour to reach their destination. Based on a cost-benefit analysis, IndiGo bet on providing customers a lower price even if it means travelling time is a bit more.

Sources say IndiGo expects to break even on these routes easily with a passenger load factor of around 70 per cent (74 seaters). An aviation analyst says that, for instance, on a route between Hyderabad and Tirupati there are over 100 Innova taxis, which ply to and fro every day. It would be able to save cost by leveraging its existing infrastructure across the country.

Cost reduction has prompted IndiGo’s choice of the ATR72-6