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The losses of Jet Airways and SpiceJet have been IndiGo’s gain, quite literally. Bucking the trend in the Indian aviation space, where companies have red ink splashed all over their ledgers, IndiGo, the country’s largest budget airline, has reported net profit of Rs 787 crore for the financial year ended March 31 — a five-fold surge from the previous year’s Rs 128 crore.
The company’s profit was pushed by a combination of increase in capacity — when other competing airlines were lowering their number of seats — and rise in yields through reduction in non-fuel expenses. The overall good show came despite fuel bills shooting up and a fall in the rupee’s value bumping up costs. Since IndiGo broke even in 2008-09, this was a fifth straight year of net profits for it.
In contrast, Jet Airways and SpiceJet, the two publicly-listed India airline companies, incurred losses of Rs 480 crore and Rs 191 crore, respectively, in the financial year.
IndiGo’s revenues increased 65.4 per cent to Rs 9,458 crore in 2012-13 from Rs 5,718 crore the previous year. The airline was a major gainer also in market share, which rose to 28.1 per cent from 22.2 per cent in 2012. Its Ebitdar (earnings before interest, tax, depreciation, amortisation and rent costs) margins stood at 18.6 per cent.
CEO Aditya Ghosh said: “We gave our financial results to the Directorate General of Civil Aviation on Tuesday morning. The increase in revenues is mainly due to capacity expansion and improving yields.”
The expenses of the airline, which is not listed on stock exchanges, went up 49.7 per cent to Rs 8,465 crore during the financial year.
But it was able to keep the fuel cost, a key component, at around 51 per cent of the total operating expenses — the same level as in 2011-12. “The increase in expenses is largely due to capacity expansion and increase in fuel prices and weakening of the rupee, especially because 80 per cent of our costs are dollar-denominated,” Ghosh said. He added the fuel cost and the impact of the rupee’s fall were contained through use of better routing, new technologies, trimming of weight and better fleet maintenance.
The airline’s strong performance seems to defy the gloom in the domestic aviation industry. Indian airlines had lost around $1.65 billion in their $ 9.5-billion combined revenues last financial year.
The airline’s result exceeded Centre for Asia-Pacific Aviation’s (Capa’s) expectation of around $100 million for 2012-13. Its CEO for South Asia, Kapil Kaul, said: “IndiGo’s consolidated profits for last five years have reached about Rs 2,200 crores ($350 million at current exchange rate), against the industry’s combined accumulated loss of more than Rs 46,000 crore ($7.4 billion) in the same period.”
In the financial year, while the combined capacity of the industry came down by four per cent, IndiGo increased its own by 39 per cent. As a result, its passenger numbers increased 27 per cent in the domestic skies, even as the industry’s fell five per cent. And, despite more capacity, it was able to record a passenger load factor of 80.8 per cent — six percentage points higher than the industry average. It was able to achieve this by keeping its average fares 15-20 per cent lower than the industry average (including full-service carriers).
Ghosh said the grounding of Kingfisher Airlines and no major price war had also helped, but conceded that might not be the case this financial year, when fares have plummeted between June and August. “Our profit surge and good performance are a result of better fares — there was no fare war last year, the yield was much better and there was an overall decline in the industry’s capacity due to Kingfisher Airlines’ grounding,” Ghosh said.
He ruled out going for an initial public offering (IPO), saying he did not see “any compelling reason” to go for it in the near future. He added: “Our cash balances are healthy. We are a net-debt-free company. We have no working capital loans. There is no compelling reason to go for an IPO.”
He also said that he was not worried about the new competition that was set to come from new players like AirAsia, saying there was a huge untapped market. According to him, the number of passengers travelling by air in the domestic skies could go up from the present 60 million to over 100 million by 2016-17. “That’s a huge demand to be met,” Ghosh said. The airline has already planned an expansion of its fleet, which will go up from the current 70 aircraft to 85-86 by March 2015.
