News Analysis

IndiGo Airlines: Weak show continues, throws hat into regional ring

Anand Kalyanaraman BL Research Bureau | Updated on January 11, 2018 Published on May 09, 2017


Two things stand out in the March 2017 quarter results of IndiGo Airlines. One, the airline's continued poor financial show despite a sharp rise in passenger numbers. Blame this on rising costs, especially fuel and lower ticket prices. Next, IndiGo's plans to diversify its fleet to fly regional routes under the government's recently launched UDAN scheme.

First, the financials. The March 2017 quarter again saw the airline slip on the bottom-line, an encore of its poor show in the December and June 2016 quarters. Net profit fell nearly 25 per cent year-on-year in the recent March quarter to about ₹ 440 crore. This dovetailed into the profit for the full year 2016-17 dipping more than 16 per cent y-o-y to ₹ 1,659 crore.

The poor show in 2016-17 is in sharp contrast to the heady 2015-16 when the airline's profit zoomed more than 50 per cent y-o-y. The weak financial show is also a paradox given the sharp rise in passenger numbers that helped IndiGo entrench its dominance as the country's largest airline. In the March quarter and during the full year 2016-17, the airline's total seat capacity, measured in available seat kilometres, grew 24-27 per cent y-o-y. Yet, profit fell with costs rising much faster than revenue. The cut-throat competition and fare wars in the Indian skies saw IndiGo's average fares fall more than 10 per cent in 2016-17. This caused the revenue per available seat kilometre to slip more than 9 per cent. In contrast, cost per available seat kilometre fell by a much lower 2.5 per cent, primarily because the cost of aviation turbine fuel rose during the year with an increase in the price of crude oil. IndiGo's huge capacity expansion over the year resulted in it taking among the sharpest cut in yields.

The recent March quarter performance was further hobbled by the fact that in the year-ago period, oil price was scraping the bottom. IndiGo's cost per available seat kilometre rose 5.5 per cent y-o-y in the recent quarter, while revenue per available seat kilometre fell 3.3 per cent with a 4 per cent dip in average fares. In what could provide relief for IndiGo and other airlines too, oil prices have been on the decline in the past couple of months. This should moderate fuel costs. But it remains to be seen whether airlines including IndiGo adopt rational pricing and rake in benefits.

The other key highlight of the quarter is IndiGo breaking away from one of the key tenets of low cost carriers - having a single fleet type. So far, the airline has been flying only the A320 (including the neo variant) aircraft. But now, it has announced signing a term sheet for 50 ATR turboprop aircraft. Operations with these smaller aircraft are expected to commence by the end of calendar 2017 and the airline expects to induct 20 of these aircraft by December 2018. This addition to the fleet type seems to be driven by the need to participate in the regional connectivity scheme (UDAN) launched by the government recently. The scheme is expected to open up the Tier II and Tier III centres across the country to air traffic and could be a big potential opportunity for airlines.

But flying large aircraft on the regional routes doesn't make sense, at least for now. IndiGo will likely jump into the fray in the coming auctions with the smaller ATR aircraft. Ace rival SpiceJet has already stolen a march bidding for winning some routes in the first auction, thanks to the smaller Bombardier Q400 aircraft in its fleet. The move to diversify the fleet type is not without risk though. It increases overall maintenance costs for airlines. Also, if the regional routes do not deliver traffic growth as expected, the new aircraft could become a burden.

Published on May 09, 2017

A letter from the Editor

Dear Readers,

The coronavirus crisis has changed the world completely in the last few months. All of us have been locked into our homes, economic activity has come to a near standstill. Everyone has been impacted.

Including your favourite business and financial newspaper. Our printing and distribution chains have been severely disrupted across the country, leaving readers without access to newspapers. Newspaper delivery agents have also been unable to service their customers because of multiple restrictions.

In these difficult times, we, at BusinessLine have been working continuously every day so that you are informed about all the developments – whether on the pandemic, on policy responses, or the impact on the world of business and finance. Our team has been working round the clock to keep track of developments so that you – the reader – gets accurate information and actionable insights so that you can protect your jobs, businesses, finances and investments.

We are trying our best to ensure the newspaper reaches your hands every day. We have also ensured that even if your paper is not delivered, you can access BusinessLine in the e-paper format – just as it appears in print. Our website and apps too, are updated every minute, so that you can access the information you want anywhere, anytime.

But all this comes at a heavy cost. As you are aware, the lockdowns have wiped out almost all our entire revenue stream. Sustaining our quality journalism has become extremely challenging. That we have managed so far is thanks to your support. I thank all our subscribers – print and digital – for your support.

I appeal to all or readers to help us navigate these challenging times and help sustain one of the truly independent and credible voices in the world of Indian journalism. Doing so is easy. You can help us enormously simply by subscribing to our digital or e-paper editions. We offer several affordable subscription plans for our website, which includes Portfolio, our investment advisory section that offers rich investment advice from our highly qualified, in-house Research Bureau, the only such team in the Indian newspaper industry.

A little help from you can make a huge difference to the cause of quality journalism!

Support Quality Journalism
This article is closed for comments.
Please Email the Editor
You have read 1 out of 3 free articles for this week. For full access, please subscribe and get unlimited access to all sections.