After being the success story of the low-cost carriers in India, Indigo, one of the few Indian airlines which is profitable...
After being the success story of the low-cost carriers in India, Indigo, one of the few Indian airlines which is profitable, wants to remain true to its low-cost model despite its plans to get listed on local bourses.
The Gurgaon-based airline, which is set to go public by offloading close to 12% of the promoters’ stake to institutional and retail investors, is banking on the “structural cost advantage” its business model brings to maintain its position as the country’s largest passenger airline.
According to Aditya Ghosh, president, IndiGo, the company wants to not only maintain its focus on domestic airline market but also use only single type of aircraft in its fleet to persist the cost advantage it enjoys. He suggests that while Indigo may look to use its current fleet of A320 airplanes for covering some of the international cities, IndiGo does not have any ambition of doing long hauls with different types of airplanes that complicates the business model.
“ Our focus will stay on the domestic operations. We don’t want to move away from the low cost model although we may go to some new regions once in a while. We will have some international operations but we will use our current fleet for the same. While we may look at all cities that are in the arc of A320, we are primarily an India focused airline because we think that this is where the opportunity is,” added Ghosh.
IndiGo instead is looking forward to expand its India offering as it currently serves 33 domestic destinations and generally adds one to two new destinations every year. And that is the reason why despite a 25% CAGR in its number of aircraft and annual domestic passengers flown, the number of domestic destinations covered by the airline has only expanded 6%.
The company is underscoring the sustainability of its low cost structure model; especially the sale and lease back policy for its aircrafts to showcase IndiGo as an attractive bet for investors.
The airlines has a policy to buy aircrafts and sell it immediately soon after the deliveries to the lessors.
Subsequently, the same aircrafts are being taken on a six year lease. As a consequence, the company does not own any aircraft and the average age of its fleet stays young and in line with modern technology. New aircrafts with modern engines conserve less fuel – airline turbine fuel constitutes 50% of the operational cost.