Here’s How Indigo Airlines Made Profit in the Indian Aviation During the Financial Recession Period

From the past decade, with the financial recession of 2008, the aviation industry across the world suffered huge losses and the market was in a bad recession. In India, where the government imposes higher taxes on fuel and airport fees, Aviation airline companies were suffering greater losses compared to other nations.

During the years of 2008,2009, and 2010, the financial conditions of Airline companies were greatly affected and Indian Aviation suffered a loss worth ₹ 150 billion in 2010-2011 and previously of ₹ 78.38 billion in  2009-2010. 

Causes of the Loss: 

Indian aviation industry and economical situations were not in favor as high fuel prices, high taxes, and airport fees brought more costs for operating airplanes. The operating capital needed for airlines in India was huge and other factors include severe competition. 

Major airlines like Jet Airways, Kingfisher, and Air India incurred losses. Many airline industries sought government intervention for reducing taxes and have favorable situations for a conducive aviation atmosphere with minor turbulence.

However, Indigo Airlines during such a turbulent situation was cruising with profits and had smooth flights. This article brings some amazing strategies that Indigo airlines used to stay above recessionary turbulence and above competition from other aviation industries.

About Indigo Airlines:

Indigo airlines, founded by Interglobe Enterprise is an Indian airline company headquartered in Gurgaon, Haryana. Its services started in 2006 with 1st domestic flight from Delhi to Imphal via Guwahati. Gradually, it expanded its operation to other domestic Indian airports and had increased connectivity across 26 locations in India by the year 2011.

Every day it had 313 flights daily during the recessionary period and its debut in the International market started shortly with its first flight from Delhi to Dubai. In 2011, Indigo increased its international coverage to Kathmandu, Bangkok, Singapore, and Muscat. 

During the same year of 2011, Indigo airlines became the second-largest market shareholder with 19.6% share, followed by Jet Airways.

Currently, Indigo Airlines is the largest airline in India by passengers carried and fleet size. It has a 53.5 % domestic market share as of October 2021. It has the largest fleet of low-cost carrier jets in the Asian market. 

Indigo’s Unique Strategy:

When the Aviation industry was facing recession, Indigo airlines reported a profit of ₹ 6.5 billion in 2010-2011. It was the only Indian aviation service to stay in the profit during turbulent times of recession. Indigo Airlines adopted a unique strategy to stay above the turbulence by using low-cost carrier planes and having sales and leaseback agreements with its sellers.

Using sales and leaseback agreement, Indigo which placed orders for airplanes sold it to buyers like AWAS and GECAS, who provided the same aircraft on a rental or lease basis to Indigo for operations.

This key move at that time was started by aviation analysts that instead of having a large fleet of airplanes, having fewer planes ensured low operating costs of maintenance and service charges. This also ensured adequate capital reserves for the company and marginal profits that paid all their expenses and debts.

Having money in hand, Indigo planned and utilized resources efficiently that provided different and efficient moves to reduce the costs of flying planes. Indigo had a six-year sales and leaseback agreement that free up its financial resources, as it did not have to take bank loans to procure aircraft.

At the same time, a fleet of aircraft on a lease basis was ensured in the new and fresh state, as the agreement had a deal of returning planes that were used for more than 6 years. This ensured inspection cost at a minimum price and fuel efficiency. 

Other Strategies:

Indigo had planned expansion strategy in such a way in terms of operations and flight plan that it adopted and leased new A320 aircraft only into their fleet every six weeks. Some clauses between Airbus and Indigo benefitted Indigo. One clause was that all repairing cost was incurred by Airbus and for planes within six years of use. This reduced overhead expenses for IndiGo.

IndiGo operated only the Airbus A320 aircraft, which helped it reduce running and fuel costs. Also, according to Mr. Kiran Rao, Executive Vice President of marketing and contracts and President India, Airbus, commented that in India, the demand for the A320 was increasing at that time, “As airbus offers more fuel-efficient aircraft, in a country like India where fuel costs are high, airlines value the fuel cost savings”.

 

IndoGo curtailed their cost at every level of resource utilization. IndiGo replanned seating arrangements that employed additional seats in a single aircraft and implemented a single class instead of the usual economic and business class. This ensured more number of passengers flying in a single plane with more fares covered.

Also, it saved on cabin crew costs, interior designing costs, and removed excess luggage racks. Another move IndiGo airlines carried out was while planes coming to take off at runaway strips, they were taxied by small pullers with planes engine turned off to save most of the fuel. 

Indigo provided cheaper fare tickets to passengers compared to other airlines and had good utilization of hospitality service with tight control over costs. IndoGo maintained the single brand image of being a Low-Cost Carrier Company and continued to remain one.

Bottom Line:

IndoGo Airlines although had efficient utilization and operations had a profit margin enough to provide with all their working expenses. Analysts were skeptical as low demand and reduced passenger travel conditions would impact their business. 

However, IndiGo airlines remained to be a profitable business in the recession period. Beating all the odds of high airport charges, inadequate fares, and growing competition.

Written by: Prajwal Barate