IndiGo Leads India’s Air Travel Recovery as Competition Grows
Indian travelers have been bitten by the “travel bug,” as IndiGo CEO Ronojoy Dutta puts it. Strong demand is driving historic revenues at the country’s largest airline, and gives Dutta confidence in his bullish outlook for IndiGo despite red ink and new competition.
“We’ve traded the Covid bug for the travel bug — people are traveling like crazy,” Dutta said during IndiGo’s June quarter results call on Wednesday. While his comment was specifically on leisure travelers, corporate travel in India has fully recovered and, where the airline is opening new domestic markets, planes are filling up faster than expectations.
That strong demand propelled IndiGo to some financial records in the June quarter. The airline achieved its highest ever revenue, yields, and unit revenue — 130 billion rupees ($1.6 billion), 5.24 rupees, and 4.69 rupees, respectively — Dutta said.
And the addition of new competitors, including Akasa Air that launches on August 7, and a reboot of Jet Airways, is not expected to dent this financial performance. “Whether it’s older airlines or newer airlines, they are all run by very professional veterans of the industry. So far we see no irrational behavior by anyone, everyone’s behaving sensibly,” Dutta said. IndiGo is also benefitting from schedule cuts at competitor SpiceJet, he added.
But IndiGo missed its sought-after return to the black from pandemic losses due to fuel and foreign exchange pressures. These external forces pushed the airline to a 10.6 billion rupee ($134 million) net loss in the June quarter. Airline Weekly estimates that IndiGo would have posted a 6 percent operating margin without the added pressures.
Fuel and foreign exchange are forecast to drive another loss in the September quarter, historically the weakest seasonally on IndiGo’s calendar, Dutta said. This has the airline looking towards the December quarter, the third in its fiscal year, for a return to profitability given no signs of the travel bug abating.
“If fuel and foreign exchange behave just a little bit, I think we could have a perfect storm of profitability in the third quarter, so that’s what we are working towards,” Dutta said. By the December quarter, he expects load factors to improve by about 7 points — or to the mid-80 percent range — even as IndiGo continues to push up yields.
With fuel costs and foreign exchange rates are largely outside of its control, IndiGo is focused on what it does hold sway over, primarily growth. The airline flew 21 percent more passenger capacity in the June quarter than it did in 2019, according to Cirium schedule data. Much of that was in the booming Indian domestic market, but also included the full recovery of its international network except for destinations in China, Hong Kong, and Myanmar. Dutta said international departures were back to pre-crisis levels in June.
“I wish we had more aircraft,” Dutta said. “We are limited by the number of aircraft we have. Given that, we are going to try and push load factors and yields but, if we had more aircraft, we’d fly to more destinations.”
Tel Aviv, following the reopening of Saudi airspace to flights to and from Israel, and cities in Africa. “We’d like to connect China to Africa. There’s all these things we’d like to do, but I guess we’re just going to have to wait,” Dutta said citing aircraft availability.
IndiGo flew 281 aircraft at the end of June, or 19 more than it flew in March 2020 when the Covid-19 pandemic began, its fleet plan shows. The carrier has no plans to acquire more Airbus A320ceos — it flew 35 at the end of June after retiring six during the quarter — but continues to take delivery of new A320neos and A321neos.
IndiGo had orders for 198 A320neos and 321 A321neos, including the long-range A321XLR, at the end of June, Airbus’ orders and deliveries data show.Subscribe Now to Airline Weekly