IndiGo feels lure of regional skies; no firm plans yet

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IndiGo is now eyeing the regional commercial aviation market of tier II and III cities (AP) IndiGo is now eyeing the regional commercial aviation market of tier II and III cities (AP)
SummaryIndiGo is now eyeing the regional commercial aviation market of tier II and III cities

After SpiceJet and AirAsia, India’s largest airline IndiGo is now eyeing the regional commercial aviation market of tier II and III cities, for which a new subsidiary and smaller aircraft might also be considered. Rahul Bhatia, group MD of InterGlobe Enterprises, which operates IndiGo, said the market for regional connectivity is under- served and very lucrative but it will take the company some time to firm up plans.

“Clearly there is a market. If you ask me are we interested, then probably yes, but it is not immediate. We haven’t decided on the details yet, like if we need a new subsidiary. I will wait for the elections before I look for any further expansion of the group business. There is a market for smaller aircraft, so we can establish regional connectivity. Whether IndiGo chooses to participate or not is a different story. We can support these markets with our A320s itself,” Bhatia said.

Currently, rival SpiceJet operates smaller aircraft like Boeing 737s and Bombardier Q400s, but a mixed fleet is expected to lead to higher maintenance costs for airlines — SpiceJet posted a R559-crore loss in Q2FY14, and currently has a negative net worth of R630 crore. New starter AirAsia will also focus on tier II and III markets when it starts early next year.

Indigo, which is adding an aircraft every month to its current fleet of about 70 (aims to operate 85 by 2014-end), feels that expansion into new destinations in the country is held back due to lack of planes. “We don’t fly to several cities because we don’t have planes, like in the western and southern parts of the country, cities like Mangalore,” he said.

Asked if the entry of two new airlines in India, AirAsia and Tata-SIA, will put pressure on profitability and prices, Bhatia said, “We will soon find out what the impact will be and if everyone can run profitably. We are not shying away from competition; we will take them head on. India is an under-served market and there is room for everybody to survive and prosper.” IndiGo currently leads the domestic civil aviation market with a 30% share (followed by Jet and Air India) and is one of the few to post profits, which increased six-fold in FY13 to R787 crore.

Bhatia added that the current trend of high ticket prices is not normal for low-cost airlines, but it was necessary because of rising input costs. “The weak rupee and high fuel prices are putting pressure on margins. Airlines are dependent on currency costs. But the religion in IndiGo is to keep prices low, otherwise I don’t think we can grow at 20-30% annually. What you are seeing right now is an anomaly,” he said.

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