1. With avg fleet age of 4 years, IndiGo ‘will have 330 aircraft at its peak’

With avg fleet age of 4 years, IndiGo ‘will have 330 aircraft at its peak’

In eight-and-a-half years, airline plans presence at 56 airports compared to 33 now

By: | New Delhi | Published: November 12, 2015 12:17 AM

IndiGo, the country’s largest airlines by market share, has made sure that its average fleet age remains four years till 2032. “It was a well thought-out fleet strategy that was made 10 years back, and not something done a couple of months ago,” said Aditya Ghosh, president.

The last plane of the three bulk orders of 530 aircraft that IndiGo has placed will come in 2026 — 100 Airbus A-320 in 2005, 180 A-320 Neos in 2011 and 250 A-320 Neos in 2015.

While other Indian carriers go for small orders of 20-25 planes, IndiGo’s bulk buying helped it negotiate rates better.

However, once all planes are delivered, IndiGo will not have a fleet of 530 planes — this is due to its famous “buy, sell and lease back” strategy. “At our peak we will have 330 planes,” Ghosh said.

Once the order is placed Ghosh explains that the planes are sold to lessors at market price.

“We buy planes at a lower price than what a seller would buy for. We gain right at the beginning — this is netted against our rentals and brings our cost down,” he said.

The planes are then leased back for the next six years —which means for the first six years IndiGo received a plane every month.

After that every month a plane goes out of IndiGo’s fleet and a new aircraft joins, thus reducing the average fleet age, and with an average fleet age that is low the cost of maintenance is also lower.

In 2011, IndiGo was the first customer for Airbus to order the new range of fuel efficient A-320 Neo planes. Neos help in saving 10-15% of the overall fuel cost. Fuel makes up for 50% of a carrier’s cost.

Because of the six year lease back plan, with the next two-and-half years one-third of IndiGo’s fleet will be Neos, and in the next six years it will have an all Neo fleet. There is a straightaway positive impact of 7% on the company’s bottomline because of of the Neos.

Ghosh gives these as reasons for the company to be highly profitable for year-after-year.

In its last quarter ended June, the company made revenue of Rs 4,317. 2 crore, profits of Rs 874 crore and had cash balance on its books of Rs 3,675 crore.

Ironically, none of IndiGo’s competition can replicate this structure at least for the next five to six years, said aviation experts.

This is because there is an over demand in the market, and Neos are booked till 2022 and its competing aircraft the Boeing 737 is booked till 2021.

“People can copy our food, our advertising, our buses, and other things but they cannot replicate the fleet we have,” said Ghosh.

Having said that, competing airlines can lease NEOs from the open market, but they will be expensive.

With the orders in place, IndiGo is planning to increase its presence in the number of cities it flies to — adding two to three cities to its portfolio every year.

In the next eight and half years it plans to have presence in 56 airports compared to 33, now.

However, regional flying is not on Ghosh’s radar, and neither are smaller planes. “We do not have any plans to induct smaller planes into our fleet. Nobody in this world has been able to implement a two-model strategy,” he said.

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