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Competitors and sceptics have been doubtful about Indigo’s year ending figures. This, at a time when the aviation sector has been bleeding losses quarter after quarter. It is, perhaps, to silence their critics, that the otherwise subtle Indigo Airlines publicly announced a six-fold increase in its net profit to Rs 787 crore for the year ending March 2013. Not being listed on the bourse does not compel the company from going public with its numbers.
Jet Airways, SpiceJet and Air India, in the same period, posted a collective loss of Rs 5,869 crore.
Indigo normally does not market itself aggressively, but it does so at crucial times, as it can be seen now at a time when other loss making competitors are compelled to sell stake to contain themselves. Indigo’s ad-campaign when Kingfisher was sinking indeed saw some red faces.
While other airline companies have been blaming the weak rupee and higher fuel prices, the dual drawback failed to prevent Indigo from reporting a six-fold increase in its numbers. The company managed to post higher profit on the back of a 39% jump in fleet capacity which resulted in 65.4% increase in revenue. The company increased its traffic by 27% while traffic for the overall industry fell by 5%.
| Net Revenue | Profit/(Loss) | Aircrafts | Destinations | Flight per day | Load Factor | Market Share | |
| Indigo | 9,458 | 787 | 70 | 34 | 447 | 80.8 | 29.1 |
| SpiceJet | 5,714.55 | -191 | 55 | 54 | 370 | 74.31 | 17.2 |
| Jet Airways | 17,070 | -480 | 120 | 75 | 620 | 78.8 | 25.1 |
| Air India | 16,130 | -5,198 | 108 | 95 | 400 | 64 | 19.9 |
Critics not entirely convinced about Indigo's numbers say that the company generates profit by entering a sale and lease back deal with aircraft manufacturers, However, Indigo has now disclosed its operating profit figures which stood at Rs 1,758 crore on an operating margin of 18.6%. This number is calculated before taking sale and lease back benefit. Au contraire, Jet Airways reported an operating margin of 7%, while SpiceJet was barely profitable at operating levels.
But it is unfair to say that Indigo is the only airline that has improved in the year. All the companies have benefitted from Kingfisher’s demise. SpiceJet managed to reduce its losses from Rs 604 crore to Rs 193 crore. Jet airways reported a loss of Rs 779 crore as compared to a loss of Rs 1,420 crore in the previous year. However, putting Indigo in the same line with the other airlines in the year ending March 2013 would be like comparing an A-grade student with one that barely managed to make the mark.
What needs to be compared, is the long term sustainability of the airline. This is where Indigo differs from the others. The airline’s closest competitor was Spicejet. But a new CEO appointed by the company’s new owners – The Marans of Sun TV Network – managed to pull the airline down into losses. Indigo, on the other hand, in cricket parlance, has stuck to its basics by taking singles. The airline did not enter the price war when every other airline was rooting on Kingfisher’s fall to earn numbers and it continues to stick to its operating format.
Owned by two of the most experienced Indians in the sector, Indigo has a fixation with cost control. The company has stuck to its low-cost carrier model rather than the low-fare carrier model. The company operates only one type of aircraft, which gives them the flexibility of using the same crew, thereby cutting hiring, training and upgradation cost of the crew. As per the aviation laws, separate crew needs to be maintained for different kind of airplanes and they cannot be interchanged.
Indigo also has the highest passenger load factor which means it carries more passengers on its plane. This, leads to higher revenue and also helps distribute cost and increase profitability. Further, its planes make more trips per day than any other airline in the country. This is possible because it has one of the best turnaround time (time taken between landing and the next take-off) of 30 minutes.
The company has managed to achieve the lowest turnaround time by taking care of little details like time taken to board and de-plane. Indigo is the only airline in the world that uses sloping ramps to enter and exit its planes. Stairs cause delay especially when children, older people or those with luggage are using them. Low sloping ramps are not only fun, but also result in a smooth flow of customers.
Cost cutting is a common thread that runs across the company. Indigo’s pilots switch off an engine when taxing the runway, thus reducing fuel cost. They plan the flight and airplane speed in such a way that fuel is not wasted in circling over airports, especially busy ones like Mumbai.
Even their sale and lease back policy is valid for six years, after which the aircraft is changed. This means lower maintenance because of a younger fleet.
Apart from costs, where Indigo scores well over its competitors, it is punctuality that ensures customer loyalty. The airline charges more or is at par with a full service airline in some of the busiest routes. Thus, even though its cost per available seat is one of the lowest, its revenue per seat is nearly at par, which explains the sharp difference in operating profit.
While these factors have kept Indigo ahead of its competitors and might continue to reap profits for the airline, the company’s actual test will be when it faces Airsia, another airline which believes in and follows the Low Cost Carrier model. It will then be a battle in which the customer will be the real winner.
Competitors with a high cost structure will be the first to crash land, stake sale notwithstanding.
