Markets ignore months of turbulence at IndiGo; but will piloting the airline be easy post Aditya Ghosh's departure?

It has been a harrowing few months for IndiGo, India’s largest airline by passenger numbers. When news of President and Wholetime Director Aditya Ghosh quitting surfaced last weekend, few were surprised though. Industry watchers have been warning of turbulence at IndiGo for months now as it seeks to change the fundamentals of its operations and eyes unprecedented expansion.

Should Ghosh have quit now, when myriad changes are being made to the very identity of an airline that he helped build from scratch? Or was his departure necessary for these changes to take effect? There are widely varied opinions on this question. Whether this senior-level exit will impact investor sentiment will be known only in a while.

 Markets ignore months of turbulence at IndiGo; but will piloting the airline be easy post Aditya Ghoshs departure?

Representational image. Reuters.

On Monday, the first day of trading after news of Ghosh’s imminent departure surfaced, the IndiGo scrip gained in morning trade and finished 0.50 percent lower. Ghosh will depart on 31 July and co-promoter Rahul Bhatia will serve as interim CEO.

Ghosh and his team's achievements over the past decade are many and are commendable: IndiGo has gone from 18 aircraft to over 160; operates more than a 1000 flights a day; has logged an eight-fold increase in topline over a decade; parent InterGlobe Aviation boasts of a market cap of over Rs 53,000 crore with the scrip trading at nearly double its listing price, two-and-a-half years ago.

IndiGo is now the fourth-largest low cost carrier in the world and the biggest, most profitable airline in India, which is the world’s fastest growing aviation market. So why is the top management being shaken-up violently?

Well, over the past few months, murmurs of Ghosh’s exit and the disquiet over induction of expats into senior management roles, both, have grown within sections of the airline. And there have been wholesale changes to some thumb rules that IndiGo had followed all along.

IndiGo first surprised investors by declaring its unsolicited interest in ailing national carrier Air India (AI) last year, when the contours of the AI disinvestment were not even known. That was the first time investors heard of the airline's plans to venture into low cost international operations in medium and long haul markets, and despaired over its plans to achieve that goal by acquiring debt-laden Air India. That one of its promoters, Rakesh Gangwal, had to hold a hasty conference call with analysts to clarify that IndiGo’s interest in AI would be conditional and that it would in no way jeopardise the airline’s financial plans was an indication of a public statement made with perhaps not enough thought.

Some say this fiasco was at the behest of Ghosh but this of course could not be confirmed. Subsequently, IndiGo said it is not interested in AI. That interest and the revelation of its medium/long haul international strategy meant IndiGo’s iron clad rule of operating a single fleet-type was set aside. It has already ordered ATR aircraft for domestic regional operations and will, in due course, also perhaps start looking out for twin aisles.

Then came some back-to-back complaints of staff misbehaviour and a scathing report by a Parliamentary panel that pulled up the airline for its service standards. The panel noted there had been many incidents of manhandling, discourteous and rude behaviour by airlines staff, especially at IndiGo. Last November, IndiGo found itself in the middle of a PR disaster after a video, which went viral, showed the airline’s staff allegedly manhandling a passenger. In particular, the panel pulled up Ghosh for suggesting that staff hired from Tier II and III cities (many educated at government schools) are often untrained in soft skills and unable to speak fluent English. The same panel also found fault with IndiGo for inflating estimated flight times to keep up its record of before-time arrival, and castigated the airline for doing so.

Next came the Pratt & Whitney engine trouble. There were murmurs of inadequate communication to investors and flyers about the grounding of aircraft, following engine snags, and the consequent cancellation of flights.

In the meantime, IndiGo’s promoters Rakesh Gangwal and Rahul Bhatia, were busy beefing up the top management team. More Gangwal than Bhatia, because many recruits are associates or former colleagues of Gangwal.

As this piece in The Economic Times explains, United Airlines’ veteran Gregory Taylor is set to succeed Ghosh as president and CEO. Willy Boulter has already been inducted as Chief Strategy Officer, while Wolfgang Prock-Shauer was appointed COO earlier in the year. Prock-Shauer steered Jet Airways and GoAir earlier. Some other crucial functions have also been assigned to senior expat hires.

As IndiGo undergoes these momentous changes, navigates hiccups  and learns what it's like to be steered by unfamiliar hands, it was perhaps time for Ghosh to walk out of the door. What one needs to watch out for is how the country’s largest airline will fly through these impending challenges of profitable medium and long-haul international operations and the multi fleet operations that those plans mandate. Perhaps the lineup of senior, experienced personnel to steer it to its next growth trajectory is not a bad idea.

Amid all these developments, it seems even expat hires at IndiGo are in the crosshairs of its rivals.

This report speaks of GoAir suing its former managing director Prock-Schauer in the Bombay High Court for alleged theft of confidential information. Prock-Schauer became CEO of GoAir in June 2015 and was its managing director from April 2016 to late 2017, before joining IndiGo as chief operating officer on February 1, 2018. How the case concludes remains to be seen, but it is surely another obstacle in IndiGo’s flight path.

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Updated Date: Apr 30, 2018 16:28:33 IST