India’s largest domestic airline, IndiGo, will add 30 percent capacity this financial year to maintain dominance of the fast growing aviation market, although its parent company has just recorded its first quarterly loss since listing.
The clear market leader with 189 planes and a 43 percent share, the airline is unwilling to cede ground to rivals like Jet Airways Ltd and SpiceJet. Chief commercial officer, Willy Boulter said,
“We are keen to protect our market share.” The airline plans to add to its fleet at a rate of around six planes a month.
India’s aviation market is growing at 20 percent annually, but a combination of rising oil prices, high fuel taxes, a weak rupee, low fares and intense competition have driven carriers into the red.
The low-cost carrier’s parent Interglobe Aviation reported its first-ever quarterly loss of Rs 6.52 billion last week. However, as Jet Airways seeks a cash injection, Air India receives fresh government handouts and budget rival SpiceJet’s balance sheet weakens, IndiGo is in the best position as it has the lowest costs.
IndiGo’s costs per available seat kilometre were 14 percent lower than SpiceJet and 23 percent lower than Jet Airways in the June quarter, according to data published by the airlines. To conserve its US $1.8 billion cash balance, IndiGo will keep leasing its A320neos rather than buying some of them as it had previously announced.The carrier also has an “aspiration” to buy wide-body jets for long-haul international flights at a later date, but for now is focused on adding more short-haul international flights to boost revenues. IndiGo is one of the biggest global customers of Airbus. It has nearly triple the market share of nearest rival Jet Airways, which recently grounded some planes to conserve cash.
But IndiGo’s strategy is not without risks. Its rapid growth is depressing fares across the market at a time of rising costs and conditioning consumers to pay less. Furthermore, its willingness to stomach losses if needed to outlast rivals could be placing the broader industry in financial peril to the detriment of the traveling public and thousands of employees at rival airlines, according to an official at the civil aviation ministry.
India does not regulate airline pricing but the government is worried about the sustainability of the industry because fares are no longer covering costs, the official said on condition of anonymity.“Pricing is entirely their domain … but if it comes to continuous bleeding by airlines then it becomes a matter of concern,” he said.
IndiGo’s success has been built on a model of simplicity, keeping costs low through the use of an all-Airbus fleet for metro flights and no code shares with other airlines or a frequent flyer programme.
Many business travelers prefer the airline because of its new planes, high frequencies and strong on-time performance, despite the grounding of some of its jets due to issues with the Pratt & Whitney engines.
The airline built up its business on the basis of offering the lowest fares in the market and it still offers super-cheap ones like a US $28 one-way sale fare for the two-hour Delhi-Mumbai flight.
More recently, however, it has accused cash-strapped rivals of discounting last-minute fares to fill more seats with paying passengers at any price.
The airline attempted a significant fare price increase through a fuel surcharge in May but it was not matched by the competition and had to be withdrawn so that it did not lose market share. Reuters