IN THE EVER-EVOLVING TAPESTRY of India’s aviation landscape, the ascent of IndiGo has been nothing short of meteoric. From its humble beginnings in 1989 to becoming the country’s largest airline with a market share of 63.2%, the journey of InterGlobe Aviation has been marked by resilience and strategic prowess. While it has reduced losses sharply, it is still incurring losses. Given the headwinds in the aviation sector, the question remains: Is the behemoth on the verge of a turnaround, or is it merely a fleeting respite in a turbulent sky?
After recording a loss of ₹1,583 crore a year ago, the airline operator swung back to a net profit of ₹189 crore in Q2FY24. Revenue from operations increased 20% year-over-year to ₹14,944 crore during the period. In the previous quarter (Q1FY24), it reported a net profit of ₹3,090 crore, and in Q4FY23, a profit of ₹919 crore. For full year FY23, however, IndiGo posted a net loss of ₹306 crore (including forex losses).
“We have remained consistently profitable for the last four quarters. In fact, this is the first time after FY18 that we have again achieved profitability in the seasonally weak Q2. Excluding the impact of foreign exchange loss, we reported an operational profit of ₹810 crore,” CEO Pieter Elbers said during the company’s earnings call.
“The most important factor has been low oil prices in the last year,” says Suman Bannerjee, chief investment officer at US-based investment firm Hedonova. “But we have to also recognise that revenue has jumped 2x since 2022 from ₹26,000 crore to around ₹55,000 crore. When sales are that high and fixed cost remains same, profitability occurs automatically. The third important factor is market share. IndiGo now owns 63% of the domestic aviation market, and that has led to economies of scale,” adds Bannerjee.
On A New Path
IndiGo, once a torch-bearer for a single-type fleet model, now has a diverse portfolio comprising various aircraft subtypes. Its fleet includes the A320 (180 seats), the A320neo (186 seats), the A321neo with two configurations (222 and 232 seats), and the ATR 72-600 turboprop aircraft.
The evolution has been driven by several factors such as maintaining a uniform fleet for operational efficiency, ensuring operational reliability, and a strategic focus on serving the domestic air travel market.
“Our order of nearly 1,000 aircraft enables us to add capacity at very competitive prices for a long period of time,” Elbers tells Fortune India. “The relatively low age and new-generation technologies allow us to manage fuel and maintenance costs,” he adds.
With IndiGo it’s about the value a customer gets for his money, says Mark Martin, founder and CEO, Martin Consulting, a Houston based technology firm. “It offers a service that is consistent and designed to suit the traveller for years. You don’t get elevated customer experience, you get the most basic amenities for a good price, and that’s what’s going strongly for them,” adds Martin.
During Q2FY24, IndiGo flew 26.3 million passengers, a 33% increase YoY. The airline’s passenger count was 52 million in H1FY24, 41% higher than pre-Covid levels. According to data by OAG, a global travel data provider, it is among the top 10 airlines globally by both frequency and market size.
“We have recently clocked 2,000 daily departures per day,” says Elbers, who is eyeing 100 million passengers this year.
The airline also boasts of an industry leading on-time performance of 86.5% and a low cancellation rate. It has started operations to four new domestic destinations — Khajuraho, Jaisalmer, Salem and Diu. It will also fly to Jharsuguda, Gondia and Ayodhya in the coming quarters, taking the total number of domestic destinations to 86.
Finding opportunity in the fact that a sizable proportion of the world’s population is within five-six hours of flying range from multiple cities in India, Elbers lists IndiGo’s international strategy through two elements — strengthening its network/adding more routes and enriching its reach through codeshare agreements.
In the last year, the airline has added 24 international routes, including Almaty, Tashkent, Nairobi, Jakarta, Tbilisi and Baku across Central Asia, Southeast Asia and Africa. It also resumed operations to Hong Kong, and plans to add Bali and Medina in the coming quarters. The airline now flies to 34 international destinations.
“Our growth aspirations, coupled with this advantageous geographical position provide us an opportunity to enhance international connectivity and redefine passenger experience,” says Elbers.
On Its Guard
For the longest time, IndiGo believed its unique selling proposition (USP) lay in a cost-effective approach. In a country where low cost prevails over everything, the airline deemed a loyalty programme unnecessary. However, as it shifted focus towards optimising yields, the need for frills became apparent to attract a broader spectrum of customers.
Elbers says the company’s growth strategy is delivering an affordable, efficient, and convenient product to an increasing number of customers. “To do so, we are committed to driving viability, which in turn is enabled by an effort to improve unit costs,” he adds.
It took IndiGo 113 months to achieve the milestone of 100 aircraft. The subsequent leap to 250 occurred at an accelerated pace, requiring only 46 months to add the next 150. And then, addition of the next 50 took just 36 months. These unconventional timelines were driven by an emphasis on fleet renewal rather than sheer fleet expansion, say experts.
Departing from its earlier strategy of a single-type fleet, IndiGo is now venturing into additional amenities. The loyalty programme marks a significant step towards a full-service model. “While aviation has always been a challenging sector to consistently generate profits largely due to external factors that impact the business, the ability to be agile in such an environment is what differentiates one airline from another,” says Elbers.
Adding to the airline’s woes is the ongoing Pratt & Whitney debacle. PW engines across the world are facing issues due to the impact of a powder metal defect, which could lead to component cracking. IndiGo has grounded around 30-40 PW-powered aircraft.
“IndiGo is not into any other business except providing air transport, and when your air transport fleet is down by almost 30%, it implies that your revenue is hit 30%,” says Martin. “When revenue is down, top line and earnings are reduced and expansion is curtailed. Clearly, IndiGo is treading on extremely thin ice,” he adds.
But Elbers sounds confident. “We do have some challenges in the form of supply chain issues. However, we are navigating these headwinds with a mitigation plan and remain committed to generate shareholder value,” he says.
“The aviation industry is undergoing constant evolution, marked by trends that will shape its future. The opportunity lies in technological advancements. Continual processes are integral to achieving affordable capacity growth,” sums up the CEO of the country’s largest airline.