New Delhi: IndiGo, India’s largest domestic airline by market share, will focus on growing its ancillary revenue to improve profits at a time when higher jet fuel costs and intense competition are eroding margins, a senior company executive said on Friday.
Gregory Taylor, senior adviser on the management executive committee of InterGlobe Aviation Ltd, which runs IndiGo, said ancillary revenue is a focus area for the airline and it will try to redefine its existing products and services besides stepping up marketing efforts.
Taylor was speaking at an annual general meeting of shareholders, a person, who attended the meeting, said on condition of anonymity. The meeting was not open to the media.
Ancillary revenue is earned by airlines from areas such as cargo revenue, special service requests, ticket modification and cancellation, in-flight sales and tours.
IndiGo recorded a 14% rise in ancillary revenue in the financial year ended 31 March 2018 to ₹ 2,577.84 crore. Other companies are also making deeper forays into ancillary revenue to sustain and grow their profits, especially in intensely competitive industries that generate high volume but margins are low.
SpiceJet Ltd, for example, started the SpiceStyle e-commerce venture in June last year to sell merchandise. State-run refiner Indian Oil Corp and Bharat Petroleum Corp have retail outlets within their fuel station premises for alternate revenue streams.
Executives at IndiGo said at the shareholders’ meeting that the carrier is not able to pass on the higher fuel costs to customers because of competition, said the person mentioned above.
The management believes that although the current level of fares are not sustainable, the company is well placed to withstand these pressures and that over time, fares will become more realistic.
IndiGo’s fuel expenses jumped 54% in the June quarter to ₹ 2,715.6 crore.
The carrier last month reported a 97% drop in net profit for the June quarter to ₹ 27.79 crore.
It was the biggest-ever drop in quarterly profit since the company listed on the local stock exchanges in November 2015.
IndiGo’s chief financial officer Rohit Philip informed the shareholders that competition has affected revenue per available seat kilometer in the June quarter, the person quoted above said. It fell 3.1% on-year to ₹ 3.7 in the June quarter.