Tuesday, September 15, 2015

Indigo's obsession with 'low-cost' has paid off well

With fuel costs expected to fall further and IndiGo’s cost structure leaner than rivals, the airline is expected to post an improved operational performance for FY16. The airline, India’s largest aviation company by market share, ended FY15 with revenues of Rs 13,925 crore and a net profit of Rs 1,300 crore.
While Jet Airways and SpiceJet, which posted losses in FY15, have turned the corner in the quarter ended June, their combined net profit for FY16 is expected to be less than half of IndiGo’s FY15 net profit. While IndiGo has grown faster than peers due to higher passenger load factor (PLF), market share gains, and domestic network expansion, falling fuel costs will continue to be the biggest trigger. PLF tells how much an airline's passenger-carrying capacity is used.
Over the past year, aviation turbine fuel costs have fallen 34 per cent. Every one per cent fall in fuel costs translates into a half a per cent gain in operating profit. This means, most airlines would see their operating profit in recent quarters boosted by 17 per cent compared to the year-ago period. IndiGo has seen its fuel costs fall from 50 per cent of sales in FY14 to 45 per cent at the end of the December 2014 quarter.
The other positive thing for IndiGo would be the continuing trend of higher sector passenger volumes, which in recent quarters have been growing at 20 per cent year-on-year. Given its network and fleet, it has garnered the highest share of passenger growth.
14/09/15 Ram Prasad Sahu/Business Standard
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