IndiGo Posts a Loss of INR 100 Crore for Q2 FY15, Expands Fleet with Tigerair Aircraft

IndiGo was known for steady annual profits, but in the second quarter of FY2014-15 (July, August and September) it made a net loss of INR 100 crore. The source of the loss figure was airline internal sources. In that quarter, capacity grew 15 percent compared with the same quarter a year earlier, but the airline flew 21 percent more passengers, a total of 5.7 million.

Fleet and traffic

The fleet ended the quarter at 82 aircraft, 10 more than a year before, a rise of 14 percent. Capacity rose more than the fleet because average aircraft use went up 3 percent, to about 11.5 hours a day. The extra passengers came partly from more capacity and partly from fare promotions made to keep up with SpiceJet. On 4 April IndiGo launched fares of INR 1,499 to 2,199 for travel between 1 July and 30 September 2014, and a few more promotions followed, most for September. September, normally the weakest month for domestic travel, grew fastest year on year.

Passengers per available seat kilometre fell in July, recovered in August and jumped in September. Cargo grew in July and September, partly because IndiGo had carried mail as well as freight since May 2014. Flights became shorter on average because of more domestic flying. International flights fell from 6.6 percent of all flights to 3.4 percent, a drop of almost 40 percent in number.

Load factors and strategy

IndiGo's domestic load factor stayed below the domestic average. The writer suggested this may be because IndiGo answered promotions, especially those started by SpiceJet, and did not start its own. Each sale needs a lot of planning, and replying to others leaves little time for it. That may have hurt revenue per available seat kilometre (RASK). Only domestic load factors were compared, as international was just 11 percent of capacity. Rakesh Gangwal and Sanjiv Kapoor both hold MBAs from Wharton, but real low cost experience came from SpiceJet's chief commercial officer, Kaneswaran Avili, who had worked at AirAsia and Tigerair.

IndiGo against SpiceJet

Sources inside IndiGo put its cost per available seat kilometre (CASK) at about INR 3.6, which is 47 paise below SpiceJet's INR 4.07. IndiGo lost INR 175 for each passenger flown. Its RASK may have been INR 3.4 to 3.5, above SpiceJet's INR 3.26, which was hit by cancellations and merged flights. Two scenarios followed:

• If IndiGo had stimulated the market the way SpiceJet did, it might have filled more seats, earned more and narrowed its loss or even made a profit. SpiceJet was the clear leader in stimulation in 2014-15.
• If SpiceJet had IndiGo's CASK of INR 3.6, its loss would have dropped to about INR 120 crore. Despite a high RASK, SpiceJet held its loss to INR 310 crore.

If IndiGo behaved like a true low cost carrier and led on stimulation, it might become untouchable. Others would have to stand out: Vistara as a full service airline connecting through Singapore, Jet as a full service airline connecting through the Middle East, and SpiceJet through in flight service and links to smaller cities. AirAsia and GoAir would feel the most heat, as neither offered something IndiGo did not. AirAsia may have the backing to grow, but GoAir would be on its own.

Fleet and network

IndiGo seemed to aim for dominance through extra capacity, frequency and network, though it had not yet made the most of that extra capacity. It received its 100th aircraft on 3 November 2014, finishing the 2005 order. The fleet rose to 84, because 16 A320s left under old six year leases. To fill the gap until its NEOs from the 2011 order of 180 arrived, expected the next year, IndiGo short term leased around 12 A320s used by Tigerair or its closed Indonesian arm, Tigerair Mandala. The first, a non sharklet A320 from Indonesia, joined on 21 November as VT-IDB. On 26 November IndiGo announced Kozhikode as its 37th destination from 2 January, taking daily flights to 554.