Rakesh Jhunjhunwala, the Indian Warren Buffett, quizzed the management of Interglobe Aviation Ltd about Indigo's capacity expansion plan, despite the airline posting stellar Q1 results.
Ace investor Rakesh Jhunjhunwala quizzed the management of Interglobe Aviation ltd which runs the Indigo airline, after the company had posted better than estimated corporate earnings for the first quarter. It is to be noted that this is the highest ever quarterly net profit figure reported by an airline in India. Helped by relatively lower operating costs and and robust revenue growth, the airline reported a net profit of Rs 811.14 crore, up by 37% as compared to corresponding period in the previous fiscal. The company made history, as this is the highest net profit posted by an Indian airline so far. That didn’t stop the ace investor Rakesh Jhunjhunwala to question the management of the low cost carrier. The company had revised its capacity expansion target to 20% from the earlier management guidance of 25%.
Jhunjhunwala said that if the airline grows at the 20% , and market also adds capacity at that range, then no fresh capacity might come in the next quarter. The management responded by saying that they see a huge opportunity on the capacity growth front in terms of continued demand in the Indian market. The management clarified that that their focus is on the long-term, and they’re not willing to squeeze capacity for short term profitability. The management further added that fare hikes may not be sustainable in the long term. “The strategy will have to change as per the rivals, and any more speculation on that would be crystal ball gazing”, said the spokesperson of Indigo.
IndiGo, India’s largest airline by market share, had formally expressed its interest in buying Air India, specifically, its international operations and low cost domestic business. However, Rakesh Jhunjhunwala had downplayed the developments, refraining from making a judgement call on the merit of the interest shown by the potential buyers, adding that Air India’s stake sale would be a long-drawn process. Further, Rakesh Jhunjhunwala also said that given the unavailability of any details so far on conditions of the disinvestment and complete status of Air India’s assets and liabilities to be offloaded, IndiGo’s expression of interest means nothing and is uninvited. IndiGo’s outstanding order for aeroplanes — the largest for any airline in the world — is a testament to this ambition. The airline has 458 aircraft on order, scheduled for delivery over the next decade, to add to its existing 135 aircraft, which is also the largest fleet for any airline in India.
(First published on Tuesday, o1 August 2017 at www.financialexpress.com)