Warren Buffett wrote: “A horse that can count to 10 is a remarkable horse. Not a remarkable mathematician.”

In 2018, I bought an airline. It was not much in news because the media was focused on other things. And when I say I bought an airline, I mean I bought a few shares of Indigo airlines. So, maybe the media was right to not cover this story.

My research told me:

• Indigo was a remarkable airline. Probably the best in India.
• It was extremely focused on flying clean airplanes, having the lowest fares and flying on time.
• Airlines is a brutal business. There are so many dead bodies in India and the world and so few survivors.
• The planes are expensive. Aviation fuel is expensive. Pilots are expensive.
• Indigo had learnt from the mistakes of its predecessors like Air Deccan and Kingfisher.
• Air Deccan tried to do too many things too fast. It flew old airplanes which were also prone to breakdowns and hence their reliability took a hit.
• Kingfisher tried to provide ultra luxury at a low price. And then overpaid for the Air Deccan acquisition. And confused the customer with its different brands. And of course now we know that it was flying using other people’s money (IDBI Bank’s).
• Indigo would order planes from Airbus in bulk getting discounts. When the plane was delivered it would sell the plane to a lessor for a small profit. And then it would lease the same plane back from the lessor.
• Thus it was able to fly new planes by only paying a rental on them. This meant that it didn’t borrow heavily or lockup capital in the planes.
• By flying only new planes, the maintenance costs were low.
• By flying only one model (A320) it reduced the spare parts inventory it needed to carry. Pilots and cabin crew had to be trained on only model. In case one plane broke down, the replacement plane was identical in seating capacity. (Imagine if a Boeing plane broke down and the replacement was an Airbus. The seating capacity may be different. You would need a different set of pilots and cabin crew etc all adding to delays and costs.)
• Indigo consistently was the lowest cost operator in the airline industry. And that’s a huge competitive advantage in a commodity like industry.
• And maybe they did some ethically questionable things like using Air Deccan’s route profitability information. (According to Capt. Gopinath’s autobiography)

I could go on. But hopefully you get the picture. Indigo is a remarkable airline.

But is it a remarkable investment candidate? Aah…now, that is a different question. Why?

• Oil prices account for nearly 30 to 40% or more of an airline’s costs. Airlines operate on wafer thin margins and oil shocks could lead to losses.
• In 2019, all airlines using Boeing 737 Max were in shock as that plane was banned from flying in almost all countries. Remember, in their enthusiasm to reduce costs low cost carriers all over the world had gravitated to 1 model. But like a Black Swan event, when 737 Max was banned, they couldn’t fly anymore.
• Likewise, if A320 is banned (for any reason), Indigo gets hit badly.
• If Airbus gets hit (for any reason), Indigo gets hit badly.
• And of course, the pandemic. For the first time, Indigo has had to layoff staff. And furlough people etc. And raise money by diluting equity just to survive.

All of the above just tells me that while Indigo’s business model and its management is exceptional, the business is prone to external shocks and is therefore fragile. Maybe less fragile than other airlines. But fragile nonetheless.

Therefore, I would say that Indigo is a remarkable horse that can count to maybe even 1000. Yet, it remains a remarkable horse and not a remarkable mathematician. Or a remarkable investment candidate.