Mumbai: InterGlobe Aviation Ltd, owner of India’s biggest airline IndiGo, on Thursday reported a record net profit of 1,304 crore for the year ended 31 March—a fourfold jump over the previous year—as it benefited from higher passenger traffic and lower jet fuel costs ahead of a planned initial share sale.

The airline company—which returned a net profit of 317 crore in 2013-14—notched up the increase on a 25% rise in revenue to 14,320 crore from 11,447 crore.

Profit before tax was 1,847 crore in the year, the company said in a submission to the Directorate General of Civil Aviation (DGCA), the aviation regulator.

IndiGo, which in July applied for regulatory approval to sell shares in a 2,500 crore initial public offering (IPO), has been consistently profitable since 2009, a feat unrivalled in India’s airline industry, which is weighed down by heavy debt and accumulated losses.

IndiGo, which had a 33.8% share of domestic passenger traffic in the year ended 31 March, reported a net margin of 9.4%, according to the submission to DGCA. The airline currently operates a fleet of 97 planes and offers 648 flights a day.

IndiGo president and chief executive officer Aditya Ghosh said four factors contributed to the record profit—an increase in passenger traffic in 2014-15; IndiGo’s ability to capture a larger share of it by increasing its capacity; stronger yields resulting from higher seat occupancy, and lower jet fuel prices that offset a stronger dollar.

Ghosh downplayed the role of sale and leaseback of planes in the record numbers generated by the airline.

“This profit is purely out of running an airline efficiently," he said. “Philosophically speaking, the mode of financing an aircraft is just a part of operating an airline. In any case, only a part of our fleet is on sale and lease back," Ghosh said.

The price of jet fuel, on which airlines typically spend 45-55% of revenue, has declined sharply in line with a drop in the price of crude, enabling airlines to save on operational costs.

Oil prices have fallen over 50% since June 2014. Crude dipped below $40 in August as concern over slowing Chinese growth fuelled volatility in world markets.

IndiGo’s listed rivals Jet Airways (India) Ltd and SpiceJet Ltd also reported a net profit for the quarter ended June as they benefited from lower fuel prices and better demand.

This seems to be the beginning of a profitable phase for airlines in India after close to a decade of pain, said K.G. Vishwanath, a partner at consulting firm Trinity Aviation Consultants Pte Ltd.

“With demand set to grow faster than supply, airlines don’t need to trigger price wars," Vishwanath said. “Crude oil seems to be in a very small range for the next few quarters. Overall (it is) a sweet spot for commercial aviation in India," Vishwanath said.

Share sale documents filed by IndiGo in July revealed that one of the secrets behind IndiGo’s success over the past few years has been its low maintenance cost.

Its largest rival Jet Airways spent more than 10 times what IndiGo did in the nine months ended 31 December 2014 on maintenance, data contained in the documents showed.

For the nine months ended 31 December, IndiGo reported a maintenance cost of 291.45 crore, or just 3.1% of the airline’s total expenses. In contrast, the maintenance cost for Jet Airways was 3,100 crore, or 14.5% of the airline’s total costs.

One expert cautioned that a profit margin as high as 9.4% may not be sustainable.

“One may benefit by 4-5% due to efficiency or low manpower cost, but there cannot be a huge change. IndiGo may operate profitably like its counterpart in the US, South-West Airlines, but cannot defy the law of gravity," said Satish Modh, director of the Institute of Management Studies and Research at Vivekanand Education Society.

“Further, IndiGo reported a net margin of 9.4%, which is quite high compared to the best performing airlines in the world," said Modh, who has over 28 years of experience in the field of aviation and is a former senior director at Air India Ltd.

He said that even South-West Airlines hadn’t been able to achieve a margin of more than 6% in the last decade.

Since starting operations in 2006, IndiGo has ousted Jet Airways to claim the top spot among Indian airlines by sticking to a single-aircraft model—it uses single-aisle Airbus planes—and diligently following a no-frills model.

On 15 August, IndiGo confirmed an order to buy as many as 250 Airbus A320neo single-aisle jets. At list price, the order was worth $26.5 billion.

In 2005, IndiGo placed an order for 100 A320s, all of which have been delivered. IndiGo has so far ordered 530 aircraft from the A320 family, out of which it has taken delivery of 100 planes.

Modh said that one way IndiGo could be making a profit is by selling aircraft booking rights to the highest bidder as and when possible.

“This is one strategy for non-operational profit making. This also explains high order bookings by IndiGo, which did not convert into delivery of planes. This is a good strategy if the airline has surplus funds," he said.

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