Low-fare IndiGo shows the way, nets Rs60 crore

Low-fare IndiGo shows the way, nets Rs60 crore
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First Published: Wed, Aug 12 2009. 10 15 PM IST

 Flying high: IndiGo has raised its market share to 14% in July from 13.6% in June, according to the regulator. Harikrishna Katragadda / Mint
Flying high: IndiGo has raised its market share to 14% in July from 13.6% in June, according to the regulator. Harikrishna Katragadda / Mint
Updated: Wed, Aug 12 2009. 10 15 PM IST
Mumbai: The country’s largest low-fare carrier IndiGo, run by InterGlobe Aviation Pvt. Ltd, has managed to make a net profit of at least Rs60 crore for the quarter ended 30 June, according to two persons familiar with the development, even as the full-service carriers are running into losses due to a decline in the business class traffic and excess capacity in the market. Both persons are employees of IndiGo but asked not to be identified.
Flying high: IndiGo has raised its market share to 14% in July from 13.6% in June, according to the regulator. Harikrishna Katragadda / Mint
IndiGo is one of the three domestic airlines that have bucked the trend. The combined losses of Indian carriers were to the tune of $2 billion (Rs9,680 crore) in fiscal 2009 and most are seeking tax concessions and soft loans from the government to stay afloat.
IndiGo has raised its market share to 14% in July, from 13.6% in June, according to aviation regulator Directorate General of Civil Aviation, or DGCA.
Its net profit in the June quarter is nearly three times that of its rival low-fare carrier SpiceJet Ltd.
New Delhi-based SpiceJet has reported a net profit of Rs26.34 crore for the June quarter on sales of Rs524.69 crore compared with a net loss of Rs129.22 crore in the corresponding quarter a year ago.
IndiGo is yet to formally announce its earnings for the June quarter but according to one of the two persons mentioned above, its sales for first quarter was around Rs600 crore.
“The key drivers for IndiGo’s profit were higher revenue per passenger and load factor compared to its immediate rival carrier SpiceJet,” this person added.
Group managing director of InterGlobe Rahul Bhatia and IndiGo president Aditya Ghosh declined comment for this story.
Both were in the city on 31 July when industry lobby Federation of Indian Airlines met at Jet Airways (India) Ltd’s headquarters to announce suspension of services on 18 August to protest against high jet fuel prices and airport charges.
IndiGo was the first to withdraw from the strike after aviation minister Praful Patel asked the airlines not to suspend their operations and instead enter into a discussion with the government.
Yet another full-service carrier, Paramount Airways Ltd, headquartered in Chennai, has also made a small profit in the first quarter of the current fiscal, according to two executives at that airline. They did not divulge details of the earnings and also did not want to be identified.
Patel made a statement in Parliament on 30 July, saying Paramount Airways was the only airline to post a small full-year profit in 2006-07 and 2007-08 at Rs1.63 crore and Rs1.17 crore, respectively.
M. Thiagarajan, managing director of Paramount Airways, could not be reached for comment.
Since airlines such as Paramount and IndiGo are run by unlisted companies, they are not required to announce their financial results to the public.
Traditionally, the first quarter of the fiscal year is the peak travel period for airlines. The lean season starts in June and continues till mid-September.
“We have estimated that IndiGo will report a net profit of Rs40-60 crore on sales of around Rs600 crore for the first quarter ended 30 June. Going by current trend, in the next 24 months IndiGo will be a billion dollar company,” said Kapil Kaul, chief executive officer (Indian subcontinent and Middle East) of Centre for Asia Pacific Aviation, an international aviation consulting firm.
Kaul said IndiGo has an edge over other low-fare carriers and that its management has a great business focus.
“Yields of IndiGo is marginally high compared to its rival SpiceJet. In the same way, it has marginally lower cost structure compared to rival low-fare carriers. Other factors such as a relatively debt-free balance sheet, securing orders for planes at the lowest possible prices and good sale and lease-back transactions have also helped IndiGo,” Kaul added.
With its fleet of new 21 Airbus A320 aircraft, IndiGo operates at least 137 daily flights connecting 19 destinations across India.
“We are reasonably impressed with the way IndiGo operates. It could be true that IndiGo reported a profit in the first quarter,” said a senior executive with Jet Airways, who did not want to be identified.
With corporate traffic slowing and ticket yields coming under pressure, full-service carrier Jet Airways has reported a Rs225.31 crore loss for the quarter to 30 June against a net profit of Rs143.38 crore for the year-ago quarter. The profit in the June 2008 quarter, however, was boosted by a reversal of depreciation charges.
The Vijay Mallya-promoted Kingfisher Airlines Ltd, a full-service carrier, has reported a net loss of Rs242.71 crore for the June quarter against a net loss of Rs157.86 crore in the year-ago quarter.
Another full-service carrier, Air India, run by the state-owned National Aviation Co. of India Ltd, or Nacil, posted a loss of approximately Rs5,000 crore for the last fiscal. An unlisted company, Nacil does not publish results every quarter.
With mounting losses, carriers such as Air India, Jet Airways and Kingfisher are shifting their services largely to low-fare, no-frill and all-economy services.
“There is no ground for a bailout for the full-service carriers as the low-fare airlines are making money in the same operating environment. The name of the game is keeping your cost low and increase the quality of service,” said an analyst with an international brokerage, who did not want to be identified.
According to him, SpiceJet and IndiGo have demonstrated how to run profitable operations.
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First Published: Wed, Aug 12 2009. 10 15 PM IST
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