Why Indigo went budget and premium at once

Snigdha Sharma (0:00)

Earlier in July, Indigo launched a new economy fair called Lite. The idea was simple. It is a triple ticket that basically allows only one cabin bag of up to 7kg. And the fair does not include a check-in bag, so if you want to check in, you pay for it separately. Now, to some flyers, this read as a sign of where Indigo was heading. Within days, people on X and Reddit were calling it the Ryan Airification of Indigo. Ryan Air is the European carrier that is known for charging separately for almost everything. They were the ones who once upon a time introduced the idea of a standing ticket also. So, the unease of Indigo flyers was mainly about the direction. You see, the airline's fares have always been low and they've always been transparent. So, a cheaper fare now that strips out the check-in bag felt to the flyers like Indigo moving towards the same Ryan Air sort of model. Now, here is the part that does not fit still. The people that you might expect to be nervous about this whole change, which are Indigo's investors, are unbothered. Its parent, InterGlobe Aviation, has watched its share price fall 9% over the past one year and trailed a nifty 50 by 4

And still, there is none of the alarm that you would hear from passengers. So, why does the thing that worries Indigo's flyers not worry the people who own it? Welcome to Daybreak, a business podcast from the Ken. I'm your host, Nidha Sharma, and I don't chase the news cycle. Instead, every day of the week, my colleague Rachel Varghese and I will come to you with one business story that's worth understanding and worth your time. Today is Friday, the 18th of September.

Let's start with why investors are so relaxed. You see, InterGlobe Aviation is the only listed airline stock in India that an investor can actually buy. Yes, SpiceJet is listed, but it has been sliding for years, and it now flies just 35 planes. And Air India, as we all know, and as my colleague Rachel told you just a few days ago, has to fix itself before it can even consider a listing. Akasa Air is still a few years away from one. So to own a slice of Indian Aviation, Indigo is the only serious way in as of now.

And what sits behind that door is huge. Over the last 20 years, the number of people flying in India has gone from 15 million to more than 210 million, which already makes it the fifth largest aviation market in the world. And over the next 20 years, that figure is expected to triple again to almost 640 million, leaving only China and the US flying more passengers. But being the only option does not earn a free pass. Investors still want proof that Indigo can pull in more revenue out of every seat, and that is what the Lite fare is really about. You just have to look closely at the pricing and it gives their entire game away. You just have to go to the Indigo website and check it yourself. And you'll notice on most big routes, the gap between the standard fare and Lite is only 150 to 300 rupees. I just checked a Bangalore to Delhi flight for September 22nd, and the standard fare is 8,364 rupees. This is including the check-in. And the Lite fare is 8,207 rupees with cabin baggage only, no check-in. So the difference came to 157 rupees. So a passenger essentially gives up 15 kgs of check-in allowance to save what?

Not even the price of an airport coffee.

My colleague Shreyasani spoke to Sanjay Lazar, an aviation expert who runs Aviar Lars Consultants. And he's very clear about who comes out ahead. The benefit, he says, is always the airlines. Indigo saves 15 kgs of weight for a spread of about 300 rupees, while charging 600 rupees for every extra kilo of baggage.

Weight, you see, in the aviation sector, is no small thing. Because lighter planes burn less fuel, and fuel is the number that torments every Indian carrier. Jet fuel swallows between 40-45% of their operating revenue, even at around 110 rupees a litre. Airlines cannot do anything about global crude prices, so they go after the costs that they can control. Like the weight of your suitcase, and even the way a plane climbs after take-off, where they have begun running AI-driven trials to shave fuel off every departure.

One more cost has been squeezing Indigo from its own cockpit. Between the financial years 2024 and 25, Air India more than doubled its pilot count to 6,000. Indigo, meanwhile, added only 400, reaching about 5,450, and in the nine months since, it has slipped to a little over 5,000. A domestic route, by the way, needs eight sets of pilots per aircraft, and an international one needs closer to 11 We have a separate episode about all of this on specifically how Indigo ran out of pilots. I will link it to the show notes of this episode. So, Indigo seems to be stripping economy to the bone while climbing upmarket at the same time. Stay tuned for more on this.