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Home >Companies >Company-results >GoAir posts Rs50 crore profit, aims for Rs100 crore net profit in FY15

Mumbai: Low-fare airline GoAir, run by Wadia Group’s Go Airlines (India) Ltd, says it made a net profit of nearly 50 crore in the quarter ended June of the current fiscal. The nine-year-old airline is targeting a net profit over 100 crore in the current fiscal year, provided there is no dramatic increase in jet fuel costs.

In an interview on Friday, Giorgio De Roni, chief executive officer (CEO) of GoAir, claimed that his airline made a profit of a little less than 100 crore in the previous fiscal, while it made a little over 100 crore in fiscal 2013. GoAir is an unlisted company and hence not required to disclose financial results every quarter.

“The net profit that we made in the previous fiscal was exclusively with the help of pure revenue of passengers and cargo unlike in 2012-13, where we had revenues of sale and lease back of planes. The June quarter results of the current fiscal is also from pure passenger and cargo business," Roni said.

GoAir’s profits come in the backdrop of massive losses in the country’s aviation sector. The combined losses of Indian airlines are expected to reach $1.4 billion in the current fiscal year due to high costs, as per an outlook report by consultancy firm Centre for Asia Pacific Aviation (Capa) in June. The combined losses for Indian airlines were at $1.77 billion in the last fiscal. In the last seven years, accumulated losses have reached $10.6 billion.

So how has GoAir managed to stay ahead of the industry?

“We are a smaller airline. But size does not matter. We are not here to chase market share. But we want to be a profitable airline," Roni, the longest-serving CEO at GoAir, said.

Roni, who started his career as a check-in agent at Italian airline Meridiana fly S.p.A., joined the airline in May 2011.

To be sure, the fleet of GoAir, that was launched in November 2005, is still at 19 planes while IndiGo, run by InterGlobe Aviation Ltd, has a fleet of 78 planes. IndiGo, India’s largest airline, was launched in August 2006. The country’s second-largest low fare airline SpiceJet Ltd, launched in May 2005, has a fleet of 53 planes.

Bharath Mahadevan, an independent consultant, said GoAir is the only Indian airline that has followed a measured growth strategy. “Nineteen aircraft after almost a decade may sound extremely low. However, their small size will help them get close to profitability because they don’t have to worry about filling up too many empty seats in their network. The other airlines have pursued a very aggressive growth strategy which means they are forced to “buy" the passengers to fill up their planes by dumping fares," Mahadevan said. He pointed out that more aircraft mean more flights and seats on sectors and timings that are not viable, but need to be operated to utilize their aircraft.

Mahadevan also pointed out that the new airline venture of Tata Sons Ltd and Singapore Airlines Ltd (SIA) has a plan similar to that of GoAir. “And look at Jet Airways (India) Ltd and Air India Ltd—trimming their domestic network drastically to cut their losses," he added, indicating that others are starting to follow a strategy similar to GoAir.

Tata-SIA airline is expected to start operations in October.

Roni admitted that he has no aggressive plans to add planes. GoAir would add only one plane in next 12-18 months. “We cannot compete with bigger airlines at this point. If the market is not growing, why should I add planes? Let us remain small but profitable," Roni reiterated.

Experts pointed out that GoAir’s strategy of focusing on metro routes is also helping.

“GoAir has put more flights into metro routes, that are cash cows. It has also smartly selected metro to non-metro routes that can get better yields by offering stimulating fares," said a senior airline executive from a competing airline, requesting anonymity.

Roni, however, says the focus on metro routes has waned over time. “At present, we have 24% of our flights on metro routes, 70% on metro to non-metro and 6% on non-metro routes. Moreover, we are getting better revenues from non-metro routes compared with metro routes," Roni said.

GoAir is increasing the aircraft utilization to 13 hours a day compared with an industry average of 11 hours. Roni said GoAir will start taking delivery of 72 fuel-efficient Airbus A320neo planes from 2016.

“We have already made pre-delivery payments (PDP) for these airplanes, that will save 15% of fuel. We will take seven in 2016 and 10 in 2017. All these 17 planes will be acquired through the sale and lease back model to cut costs to the company," he said.

In June 2012, GoAir had placed an order for 72 A320neo planes for $7 billion.

GoAir is also actively in talks with foreign airlines for a possible equity stake sale. “We are looking for a strategic partner. We are in talks with foreign airlines for a foreign direct investment," Roni said without disclosing the names of the airlines. The Indian government had permitted foreign airlines to invest up to 49% in Indian airlines. Etihad Airways PJSC had bought a 24% stake in Jet Airways after the government’s decision.

Roni said GoAir would be applying to the ministry of civil aviation to fly overseas as soon as it takes delivery of the 20th plane. According to government regulations, a domestic airline will have to complete five years of operations and have 20 planes to qualify for flying abroad. He said GoAir was keen to fly to West Asian countries and neighbouring countries to begin with.

However, the airline executive quoted above cautioned that GoAir may not be able to sustain the current profitability as it starts taking the delivery of more planes and competing with other airlines.

Craig Jenks, president at New York-based consultancy firm Airline/Aircraft Projects Inc. said it would be a tough task for GoAir to scale up from 19 planes.

“Anything can wrong in the civil aviation industry. The secret is to keep the business model simple and flexible. We will be trying to do that," Roni added.

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