Indigo hits air pocket on pilot shortage but can it get worse?

An airline’s operations plan addresses the question of how to deliver the schedule. It is an exhaustive, complex and collaborative process, with key efficiency and asset utilization targets. A well-executed plan translates into cost control and high asset utilization. But any weak link in any function can affect the overall outcome – namely, schedule reliability. Items that are planned for include:

Fleet availability: the number of aircraft available for flight each day

Maintenance: scheduled maintenance based on hours and/or flight cycles

Staffing: number of crew required for operations

Airport constraints: such as curfews, special training requirements, slots

Training: regulatory and company mandated training and impact on operations

Network design: the patterns of routing aircraft

Scenario planning: disruption planning including mitigation measures

All of the above together enable an airline to deliver the reliability of schedule.

For Indigo, each of the above items has moved from simplicity towards complexity. For instance, from a uniform fleet of A320s powered by only one engine type, Indigo now flies 3 different aircraft (the ATR, the Airbus 320/320NEO and the Airbus321NEO) with 3 engine types. Predictable maintenance schedules are more complex with a mix of new aircraft purchased directly and older aircraft sourced from the secondary market. The network is more complex with a mix of 55 domestic destinations and 15 international destinations of varying stage lengths. Point-to-point flying is still the foundation but schedules have now been aligned towards maximizing connecting traffic and thus network patterns have also become complex.

Simply put: Indigo has evolved and each area of operations has become more complex.

As a response to the planned cancellations, Indigo stated that it has an adequate number of crew sets (just a fancy aviation term for one pilot and one first officer). While this is correct, it is the wrong metric to focus on. The metric that is critical is available flight hours. This is because a crew set number only highlights how many pilots are on rolls but does not account for planned leave, training requirements, unplanned leave, resignation and other exigencies. The available flight hours is a much better metric as it can be matched to the flight hours required for the schedule. Consequently, the shortfall is covered by mitigation measures which include overtime, leave reallocation, additional flying from management pilots and additional hiring.

So the question to be asked is: does the airline have enough flight hours available to cover the published flying schedule?

Indigo’s strategy of dominating each airport it enters has helped productivity. In most airports, it commands a capacity share of 30 percent or higher. Central to this strategy is the concept of amortizing the fixed costs over a larger spread (on average these costs are 10 percent – 12 percent of the cost base). Handling equipment, airport staff and office space are busy throughout the day thereby maximizing productivity. Yet as the airline has grown aggressively and as flying schedules become more complex, the sheer volume of activity has increased. When coupled with attrition, HR policies and growing expectations, there has been an impact on morale and consequently the overall productivity.

For pilots, specifically, this includes the nature of flying. From schedules that had limited layovers (overnight stays away from a pilots’ home-city) and a majority of flights during the day, the network now has red-eye flying, international legs and dead-heading (where pilots are flown to a city other than their own base to operate flights).

In this case, in addition to pilots flying more complex schedule patterns, Indigo managers also pushed for pilots to fly the maximum available hours. This is no exception for airlines and indeed is a good cost control measure. But in such situations, engagement with pilots is essential. It is often that smaller and often overlooked items such as providing crew-meals, minimizing delay in transport arrangements or even making sure that the operations department answers the call when a pilot calls with a concern – makes the difference between happy (read: highly productive) pilots and disgruntled pilots.

In Indigo’s case, news reports indicate that the scheduling efficiency was being driven to the point where it had started to impact morale and this is a lesson that must not be lost on management and crew-planners alike.

For an airline that focused on productivity and won awards for being a great place to work, pilot morale is one item that was overlooked.

Operations management is like investing where the effect of compounding can amplify returns (or problems) for both good and bad decisions.

Specific to the pilot issues, crew planning can be managed via a series of short-term fixes. However, these fixes start to compound negatively and all too often can lead to extensive schedule disruptions. For instance, if an airline is running short of crew, it can offer overtime to pilots and several pilots will fly 100 hours a month. But, based on current regulations that allow a pilot to fly 1000 hours in a consecutive 365-day period, this means pilots time out in 10 months and thus in the last 2 months, there is a lack of available crew hours (they are still counted as crew sets though). If this is not managed well there is a large hole to cover in terms of pilot hours towards the end of the year. And to manage this, the airline has to cancel leaves of existing pilots, mandate additional flying for those that have not opted to fly overtime, and supplement with additional pilots.

Similarly, a short-term fix for on-time departures is the reallocation of the crew from their original flights to new flights. While this helps maintain on-time, it leads to crew pattern disruptions which then has longer impacts including additional requirements for hotel rooms, unplanned layovers and cost of dead-heading new crews to bases – all of which drives up costs and drives down morale.

Indigo, it seems, had some short term fixes which compounded and finally resulted in schedule disruptions that were attributed to a 30-minute hailstorm over Delhi. Additionally, these are now forcing Indigo to cancel flights through the end of March.

Overall Indigo, through schedule cancellations, is actually taking the bitter pill but doing the right thing in the long term. However, this is only a first step and one that should have been taken months back. 

Indigo has been very aggressive on capacity induction and is likely to give guidance in the 20 percent – 25 percent range (by available seat kilometres) for the coming financial year. New aircraft inductions are planned and these are critical to lowering the cost base. For instance, additional A320 NEOs are delivering a 15 to 18 percent fuel burn advantage, lower maintenance costs and 6 more seats per aircraft. Each A321NEO is delivering 19 percent more capacity against similar fixed operating costs as against the A320/A320NEO and will enable Indigo to maximize its slot portfolio at constrained airports and free-up slots for international flying. International expansion, which is underway and where routes have an in-built maturity period, have to be sustained and built up.

In addition to the costs, equally important is the sale-and-leaseback income generated from the inductions which also factors in the liquidity on the asset type. There are mixed views on the sale-and-leaseback premiums and how they may trend in the future for the selected aircraft type. Also with liquidity tightening up in global credit markets, rising LIBOR rates (critical to aircraft pricing) and a constrained lending environment in India (driven by the NPA situation where banks are wary to lend to airlines given the unstable EBITDAs), the sale-and-leaseback stream is even more important.

A slowdown of inductions would involve a renegotiation and reallocation of delivery slots by Airbus. This then has other cost and revenue impacts. Thus Indigo’s decision to hire 100+ expatriate pilots, which has a definite impact on the cost base, is still the most viable option.

Simply put: delaying or deferring inductions is not an option.

The planning process by its very nature is dynamic and requires integrative leaders who have both the discipline and the wherewithal to take decisive action based on the understanding of market dynamics and trends. For Indigo, the recent disruptions are likely a wake-up call both in planning and in execution.

The hiring of expatriate pilots will no doubt help stabilize operations but it assumes that the attrition rates will not rise and that there will not be any significant change in stage-lengths (which will depend on the international flying patterns). The short-term measures can help Indigo return to normal by the second half of the year, but in order to alleviate these challenges, the airline needs to focus on softer elements, manage complexity and ensure that the price of cost control is not higher than the benefit of cost control.

Considering its balance sheet strength, market dynamics and also the fragile nature of competitors including some low-cost competitors, Indigo, as of now, seems to be well positioned to fly through this turbulence.