IndiGo Stays Course Despite Losses

by Neelam Mathews

 - October 25, 2018, 10:21 AM

After registering its first quarterly loss in ten consecutive years due largely to price wars, Indian budget carrier IndiGo said on Wednesday said it will neither reduce deliveries nor cut capacity in the near future as it prepares to accept more A320neos from Airbus. The carrier announced a $98 million loss in the three months ending September 30 against a background of an unsustainable level of low fares in India’s domestic market.

“Aviation in India is going through pressures from excessive gasoline prices, rupee depreciation, and intense competitors, all of which have impacted our profitability this quarter,” explained  IndiGo co-founder and interim CEO Rahul Bhatia. “Regardless of this troublesome setting, IndiGo stays nicely positioned because of our value construction and robust balance sheet.” Fuel constitutes more than 40 percent of total costs in India while about 50 percent of costs excluding fuel gets denominated in foreign currency, said Bhatia. “Typically in the airline industry, you would expect to see higher fares to cover the increased costs,” he noted. “However, that has not happened here.”

During a summit held earlier this month in Jeju Island, South Korea, Association of Asia Pacific Airlines director general Andrew Herdman highlighted India’s fiscal “paradox.”

“India has the fastest growing market has the worst profitability,” he said. “This relentless growth [has led] to Air India losing money, IndiGo is squeezed towards breakeven, and Jet Airways is feeling the pinch towards cash flow. It is a paradox that the fastest growing market is losing the most….It is very challenging.”

Still, Bhatia adamantly declared that IndiGo would not change its long-term capacity strategy. “I do admit there will be a bubble for the next couple of quarters,” he said. “We are not building this airline from quarter to quarter. We are looking at the long term.”

Aware of the perils of price wars, IndiGo “is not leading the charge of low airfares,” said Bhatia. He added that IndiGo had to withdraw a fuel surcharge implemented in May as competition continued with ruthless fares.

IndiGo added 20 aircraft in during the quarter ending in September, taking its fleet to 189. It launched five new destinations and 35 new routes during the period. It now serves more than 1,300 city pairs, via either direct or one-stop service, and it operates more than 100 daily departures out of each major metropolitan city in India: Delhi, Bombay, Bengaluru, Kolkata, Hyderabad, and Chennai. Bookings have started for six new international destinations and, with November’s Airbus 321neo deliveries, the airline plans to add medium-haul international points. Bhatia called any prospect of flying long-haul service with widebodies “more aspirational.”