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Tag Archives: Tigerair

IndiGo posts a loss of INR 100Cr for Q2’15, expands fleet with Tigerair aircraft

26 Wednesday Nov 2014

Posted by theflyingengineer in Airline, IndiGo, SpiceJet

≈ 4 Comments

Tags

Indigo, loss, Q2, Spicejet, Tigerair

IndiGo acft

IndiGo, the airline known to consistently post annual profits, realised a net loss of INR 100Cr in Q2 FY2014-15, covering the months of July, August and September (see footnote). In this period, the airline added a capacity of 15%, compared to Q2’14, but flew 21% more passengers – a total of 5.7 Million.

The airline ended Q2’15 with 10 aircraft more than Q2’14, with the fleet strength standing at 82 as of September 30th 2015. This is an increase of 14% in fleet strength compared to Q2’14. The disproportionately higher increase in capacity compared to fleet increase is explained through a 3% increase in average aircraft utilisation, up to an average of around 11.5hrs in Q2’15.

The increase in passengers in Q2 is partly due to an increase in capacity, and partly due to market stimulation efforts that IndiGo adopted, to keep up with SpiceJet’s initiatives. On April 4th, IndiGo launched fares between INR 1,499 and 2,199 for travel between 1st July 2014 and 30th September 2014. The period of travel was exclusively in Q2’15. This was followed by few other promos, most of which were for travel in September 2015. This resulted in September recording the highest growth in passenger, Year-on-Year, as seen in the graph below.

Cost and Rev Indicators Trend

IndiGo’s capacity increased in the three months of Q2: July, August and September. However, compared to Q2’14, the number of passengers per ASK dropped in July, picked up in August, and shot up in September due to numerous sales that targeted September: historically the weakest month for domestic travel. The airline’s cargo performance recorded a growth in July and September. The increase is partly due to the fact that IndiGo has started carrying mail in addition to freight, since May 2014.

Average flight hours per departure have reduced, indicating on average shorter flights flown by the airline, due to increase in domestic flights. International flights, which comprised 6.6% of all flights in Q2’14, has halved to 3.4% in Q2’15, indicating a strengthening on the domestic front and a reduction on the international front (International flights dropped by almost 40%).

IndiGo load factorsHowever, a lack of vigour and success in market stimulation may have been responsible for the domestic load factors (LF) of the airline to consistently trail the average domestic load factors (see graph above). It may be possible that since IndiGo responded to sales, especially those by stimulation leader SpiceJet, but didn’t initiate them, the efficacy of the sales drives may have been severely limited (a lot of planning and analysis goes into each sale. Responding to others may rob the respondent the time to perform sufficient due diligence). See the comparison between SpiceJet’s and IndiGo’s load factors, below – IndiGo can do a lot better. This could have had an adverse impact on the airline’s RASK (Revenue per available seat kilometre). We consider only the domestic LF, as International forms just 11% of the airline’s deployed capacity.

Interestingly, Rakesh Gangwal and Sanjiv Kapoor have both earned a Master of Business Administration degree from the Wharton School of Business of the University of Pennsylvania. However, a true low cost airline experience (and proven market stimulation strategy) is brought to the table by SpiceJet CCO Kaneswaran Avili. His experience at AirAsia and Tigerair have resulted in the graph below.

A comparison with SpiceJet

6E vs SG lfA comparison with SpiceJet becomes inevitable – the two largest low cost carriers with seemingly different strategies today.

Sources within IndiGo reveal that the airline’s CASK (cost per available seat kilometre) is at around INR 3.6. Compared to its next biggest LCC competitor – SpiceJet’s CASK of INR 4.07, this is INR 47 paise lower. IndiGo lost INR 175 for every passenger flown in Q2.

The CASK at IndiGo seems to be INR 3.6, and the RASK for Q2 may hover around INR 3.4-3.5. This may be higher than SpiceJet’s Q2 RASK of INR 3.26, which was impacted by cancellations and clubbing of flights.

Here are two interesting scenarios:

One – where IndiGo could have stimulated the market like SpiceJet. An aggressive market stimulation may have narrowed the loss for IndiGo, or it could have perhaps reported a profit. The airline could have flown fuller airplanes (in the light of its disappointing load factors) and brought in more revenue, resulting in a higher RASK. SpiceJet in 2014-15 is undoubtedly the Indian market leader in stimulation. IndiGo on the other hand didn’t respond too well to this. It will be interesting if this figures in their next year’s strategy.

Two: Where SpiceJet could have had the CASK that IndiGo enjoys. If SpiceJet’s CASK was INR 3.6 against its INR 4.07, its loss would have narrowed to around just INR 120Cr. Despite its high RASK, SpiceJet was able to salvage the situation to a level where the loss was arrested at INR 310Cr.

If IndiGo starts behaving like a true low cost carrier, perhaps emulating, and not merely responding to the kind of market stimulation that SpiceJet was able to execute, it may become an untouchable. The only way for other airlines to survive will be through differentiation: Vistara as full service, with favourable connections to the world through Singapore; Jet as a full service, with favourable connections to the world through the middle least; and SpiceJet through its well differentiated in flight services and Tier II/III connectivity. AirAsia and GoAir may face the highest heat as they yet do not have an offering that IndiGo doesn’t. While AirAsia may have the backing to grow to a scale to take on IndiGo with scale and lower costs, GoAir will be the loner.

Fleet and network expansion

A strategy that IndiGo seems to be applying is market dominance through excess capacity, frequency and network. The airline, however, is yet to make the most of its ‘overcapacity’.

IndiGo received its 100th aircraft on the 3rd of November, 2014, completing an order that was placed in 2005. With this 100th aircraft, the fleet size rose to 84 (16 A320s were sent off as per the old lease contract that lasted six years).

To fill the gap between November and last next year – when its NEOs from its second, 180 aircraft order placed in 2011, are expected to be delivered, IndiGo has ‘short term’ leased around 12 Airbus A320 aircraft used by Tigerair or its now defunct subsidiary at Indonesia – Tigerair Mandala. The first aircraft, a non-sharklet A320 that flew at Indonesia, joined IndiGo’s fleet on 21st November as VT-IDB.

IndiGo today (26th Nov 14) announced Kozikhode as its newest, 37th destination, which will be connected 2nd January onwards. With this, the airline’s daily flight count will rise to 554.

Footnote: Source of loss: Airline internal sources.

IndiGo may lease airplanes on short term from Tiger Airways

12 Saturday Jul 2014

Posted by theflyingengineer in Operations

≈ 1 Comment

Tags

A320, Indigo, lease, Mandala, short, term, Tigerair

6E_Ramp_320_BIAL

It has been learnt that IndiGo may be flying TigerAir’s Airbus A320 aircraft on a ‘short term lease’.

The move gains prominence in the light of four developments: IndiGo’s original 100 airplane order will be completed in the December of 2014, new competition from TATA-SIA and AirAsia India has made IndiGo upward revise its expansion plans, IndiGo has now extended the lease of its airplanes to 10 years from the previously financially viable six years, and Tigerair Mandala ceased operations on 1st July 2014.

IndiGo had ordered 100 Airbus A320 aircraft in the June of 2005. With the 100 airplane order completing in the December of 2014, the 180 airplane order placed in June 2011 kicks in, which comprises 150 A320 new engine option (NEO) and 30 A320 classic engine option (CEO).

With IndiGo inducting 19 A320s in 2012 and 17 A320s in 2013, the 30 aircraft which are part of the new order may be inducted into the fleet by the third quarter of the calendar year 2016, perfectly timed to coincide with the A320 NEOs for the airline. Initial production rate of the A320NEOs will be low as it will share the line with the existing A320s. The A320NEO’s expected entry into service (EIS) is early 2016.

While this was the plan for IndiGo, it seems like the competition has messed them up. To retain market share and maintain an edge, the airline is possibly looking to scale up operations, considering the new routes that are being added, and the fact that the airline is trying to keep its airplanes in its fleet longer, through a lease extension.

To support its expansion plans, IndiGo has been inducting at least one aircraft every month, with as many as four in a month. However (and surprisingly), for unclear reasons, the airline has not inducted any aircraft in the months of May and June. VT-IAP, the yet to be delivered A320, may likely be inducted in August. This will take the fleet size to 79 aircraft, and will be the 95th aircraft from the 100 airplane order., leaving five airplanes to be delivered across the five months August-December.

With the Delhi based TATA-SIA expecting to start operations in September, and the Bangalore based AirAsia India expecting to receive its second and third aircraft late July or early August, and the airline mulling flying to the north soon, IndiGo may be looking to expand to stay ahead, by leveraging the economies of scale.

On July 1st, 2014, Indonesia’s Tigerair Mandala ceased operations. This is the second time ‘Mandala‘ as an airline has ceased operations, and this time it was after Citilink and AirAsia refused to acquire the airline. This has placed nine Airbus A320 aircraft from the airline into storage at Kuala Lumpur, which means nine A320s are available for grabs. The Flying Engineer believes that some of these A320s may make their way to IndiGo under a ‘short term lease’.

Inducting Tigerair Mandala’s A320s into the fleet won’t be an engineering hassle for the airline as these aircraft are also powered by the IAEV2527-A5 engines: the same ones that power the A320s at IndiGo. The cabins are laid out in a dense economy configuration of 180 seats, similar to IndiGo’s. None of the aircraft have the fuel saving ‘sharklets‘.

While this may seem like IndiGo’s knee-jerk reaction to opportunities and market dynamics and competition, it must also be noted that such measures are adding a degree of ‘stickiness’ to IndiGo’s otherwise well planned operations. The airline’s older aircraft, especially some above the age of six years, are starting to appear dirty on the outside-the fuselages of those airplanes are no longer fully white. IndiGo had in the past taken care to ensure its airplanes were clean.

If the Tigerair lease materialises, then it will be the first time in IndiGo’s history that the airline will operate aircraft previously used by another airline, and for the first time will fly airplanes that were previously used.

Thanks to Oscar Victor.

Spicejet: What it did, what it must do, and the Tiger it may very well get into.

30 Monday Dec 2013

Posted by theflyingengineer in General Aviation Interest, Operations

≈ Leave a comment

Tags

Acquisition, Airways, Bain, Co, Customer, Experience, Factor, Indigo, Kapoor, Load, Merger, Offer, Profits, Sanjiv, Spicejet, Tiger, Tigerair

SGQ400

This piece has 3 parts: the first entirely factual, the second, Spicejet’s offer and what it should do to make itself more appealing (based on actual feedback), and the third: a focus on Spicejet, its COO, and its investor: is a part factual and part well informed yet speculative section.

The Big Sale left no great Tale.

In the 3 months of February, March and April 2012, Spicejet had flown 838,911 empty seats that made up 25% of the airline’s average seat capacity in that 3 month period. Based on the airline’s past performance and future growth projections, 25% in that 3 month period, in 2013, was to have translated to 987,644 seats. Make that 1,000,000 (10 lakh) for the arithmophobic.

That’s the exact number of tickets that were on sale, mid January, for an all inclusive fare of INR 2013, during the airline’s Big Sale offer, valid for travel during February, March and April, 2013.

The numbers made sense; everyone was convinced, and the figures added up to a promise. The load factors were expected to lean towards 100%, by roping in travellers who otherwise would have preferred the Indian Railways. It should have made perfect sense.

But it didn’t. In that 3 month period, the airline flew 900,733 empty seats, 7% more empty seats than those in the same period, in 2012. Capacity had grown 17%, demand grew 20%, but the average load factor had grown a dismal 2.8% to 77.3%.

But did it have the effect of siphoning off passengers from other players, including its biggest, true low cost competitor, IndiGo? In the same period, Feb-April 2013, IndiGo’s capacity grew 24%, demand grew 27%, and load factors increased, eerily, by the exact same amount as Spicejet’s: 2.8%, to 82.7%.

And yes, both airlines flew 900,000 empty seats each in that 3 month period.

Focusing on the consistent, business traveller.

It’s that time of the year, again, and Spicejet has a new offer: the Spicejet Corporate Flyer Offer, which offers to corporate companies 1 free one way ticket  for every 6 completed one way journeys and 2 free one way tickets for every 10 completed one way journeys, with applicable T&C. This year, until probably any other offer is introduced, the airline has shifted focus from the Aam Aadmi, and focused on Corporates.

Will it pay off? Maybe. But unlike targeting the rail-going population, the corporate traveller needs something more: good service. And from what we’ve been hearing, including from a top management guy from one of the world’s largest manufacturers of computers, with a strong India presence, the service needs a makeover.

Agreed, India is a price sensitive market, but it’s  not always the fares and offers that attracts a passenger: promise must be met with delivery. Because everyone remembers the bad and not the good. And an airline wouldn’t want to risk that, if one of its passengers is a decision maker at a big, big company.

Pilot in Command: Sanjiv Kapoor

This small, yet deepened focus on the corporate traveller may be one of the changes brought about by the Sanjiv Kapoor guided airline. Sanjiv Kapoor, interestingly, was employed by Bain & Co for over 5 years, the last position that of a Principle. His profile spanned strategy, turn around, alliances, network planning, revenue enhancement, procurement, post-merger integration, and customer experience transformation.

His absorption into the company is very interesting. Customer Experience can do way, way better in the airline, and hopefully, he’s here to deliver. Alliances: he’s already entered Spicejet into an interline agreement with Tigerair.

And the most interesting part is here: procurement, and post-merger integration. Very surprisingly, Sanjiv appointed consulting Bain and Co. to restructure the airline’s network and return it to profitability. Sanjiv also held the position of Senior Director, Temasek Holdings for 1yr 8 months. Temasek Holdings, directly and indirectly through Singapore Airlines has a significant stake in Tiger Airways, which operates as Tigerair.

Some wonder if Spicejet hired Sanjiv, or Tigerair placed Sanjiv in Spicejet. The quarterly loss of Spicejet is eerily similar to that of Indonesian carrier Mandala Airlines, which was grounded in 2011, for a year, following debt related issues. The airline took to the skies again, reborn as Tigerair Mandala.

The winds point to Tigerair investing in the Indian low cost airline. The winds are strong and steady, and the dawn of 2014 will show us the airline and its investor, striped or not.

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