Thursday, August 02, 2018

IndiGo profits decline: Cost control the only mantra airline should follow to stay ahead

The shocking decline in profitability of India’s largest airline by passengers, IndiGo, in the June quarter reinforces the mantra all airlines chant: Cost control and its criticality to their survival. This is true anywhere in the world but especially pertinent in the Indian market, which anyway offers a very high-cost operating environment as taxation on jet fuel is among the highest anywhere. In the past too, Indian airlines have skidded when costs spiralled. So the dismal numbers of the June quarter should be warning enough to IndiGo to buck up.

High maintenance costs due to the NEO engine issue as well as a change in the airline’s earlier model for acquiring aircraft (from sale and leaseback to outright purchase) could be the two main reasons for a spike in costs for IndiGo. Since the induction of A320 Neos in 2016, the airline has intermittently been facing engine issues and has been forced to ground some aircraft besides spending more on aircraft maintenance. This, coupled with declining passenger earnings and fuel cost spike, has lead to the dismal June quarter numbers. And the airline management acknowledged that frequent groundings due to engine issues is a problem.
02/08/18 Sindhu Bhattacharya/First Post
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