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Jet, Let, Go: The economics behind IndiGo’s business class strategy

In a surprising announcement, IndiGo has said that it will have business class on its flights on busiest and business routes before the end of the year. The airline will detail its product around August when it completes 18 years in the skies. While many saw it coming and was reported in the media before, the surprise was the fact that it decided to have a piecemeal approach with the announcement and not wait for the announcement to be done with the product reveal.

IndiGo, since it gained a certain scale, has been instrumental in stimulating traffic and making flying a near commodity in India.(HT file photo)

With a loyalty program already in the works and publicly stated along with the widebody order, IndiGo has now gone far from where it began. With the kind of profits it is clocking, it has the room to try out things.

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The business class seats available in India are all by Tata group of airlines led by Full Service carriers Air India and Vistara, along with some seats on offer on the 737 MAX8 aircraft of Air India Express.

IndiGo, since it gained a certain scale, has been instrumental in stimulating traffic and making flying a near commodity in India. While it continued scaling new heights, it steadily dropped its low cost tag and slyly started calling itself “affordable” as it moved towards being premium. A look at the business class fares on flights between Mumbai and Delhi shows that the Business class seats are available for anywhere between four or five times the economy class fare for the same dates.

One way of looking at the IndiGo strategy is to see if it can commoditise Business Class travel, the way it tried doing with Economy class and offer fares which are cheaper than rivals.

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Filling up the void

IndiGo is more likely merely filling up the void left by Jet Airways. Data shared by Cirium, an aviation analytics company, exclusively for this article, shows that a typical week in June will see 7,032 business class seats being deployed in India across routes. This includes 3,968 seats by Air India (56% of total), 1,984 by Vistara (28% of total) and 1,080 by Air India Express (16% of total).

However, Jet Airways (and Jetlite) was the largest full service carrier in India before it went down in April 2019. Before its downfall started in early 2019, Jet Airways operated 10,034 weekly business class seats, per Cirium data. This alone is more than the combined business seats on offer today. The total business class seats on offer per week in December 2018 was 15,564.

A comparison shows that there are 55% fewer business class seats in India today as compared to when Jet Airways was in operation. While Air India Express did not offer any seats in the front cabin back then, even Air India had more seats on offer. Vistara offers more seats today than it did in December 2018. Does that mean IndiGo is trying to fill up the void left by Jet Airways?

A mix of COVID, the NCLT driven resolution plan of Jet Airways and wait and watch on the moves of Tata group might have taken IndiGo this long to announce its plan of filling up its void. This also coincided with disagreements between the two co-founders at IndiGo, which saw Rakesh Gangwal exit the board and sell shares in tranches.

It remains to be seen on what configuration the airline decides for and the seats. Business class is perceived differently in different geographies. In most of Europe, a regional business class means having the same set of three seats with the middle seat blocked and extra leg room and frills.

Also read: Air India Express cancellations: Monopoly routes will be hit the most

In the US, Ultra Low Cost Carriers like Spirit have a full blown business class seat which is a 2×2 configuration while the rest of the aircraft has a tight pitched 3×3 seating. JetBlue which started as an LCC, much like IndiGo, has long moved the premium journey and offers business class suits on some of its routes and aircraft.

Tail Note

How will IndiGo classify its busiest and business routes? Will all metros be covered or the shorter sectors like those connecting the southern triangle of Bengaluru, Hyderabad and Chennai be left out?

As the Tata group of airlines try to get the battle to IndiGo, IndiGo is trying to take on the battle to the Tata group on fronts which were earlier well guarded, i.e. business class and loyalty. As Air India moves from one phase to another of its ambitious Vihaan.AI plan, what will matter in the end is market share and profitability and on both counts, IndiGo looks comfortable for now.

Ameya Joshi is an aviation analyst.

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