NEW DELHI / SYDNEY (Reuters) – India IndiGo has emerged as one of the largest airlines in the world by capacity, aided by a rapid recovery in the domestic aviation market to nearly 80% of pre-pandemic levels and by financial strength to increase market share as rivals struggle.
The airline is now the seventh-largest in the world by capacity and the largest outside the United States and China, according to data company OAG. This is a rare bright spot in a struggling global aviation industry, providing a lifeline to ailing lessors and aircraft manufacturers by paying their bills on time and in full.
IndiGo took 44 planes from Airbus SE last year – the largest number of customers and topping Delta Air Lines Inc and China Southern Airlines Co Ltd – as it replaced older aircraft with newer, more fuel-efficient models. It is also preparing to further expand its fleet from 2023.
With a domestic market share of 52% in 2020 versus 47% in 2019, and profitability in sight after a loss last fiscal year, IndiGo is expanding its reach to smaller Indian cities like Ranchi, Patna and Gorakhpur to replace a Business travel declines on larger routes such as New Delhi-Mumbai, CEO Ronojoy Dutta told Reuters.
It is also betting that faster growth and higher margins will come from non-stop flights to international destinations such as Moscow, Cairo and Manila which it can reach with its narrowbody aircraft, eliminating the need to complicate its fleet with widebody aircraft.
“As things stabilize, I am very optimistic that by the end of 2021, I think we will be completely back to normal,” Dutta said, referring to the calendar year rather than the financial year ending March 31.
“And I think 2022 is going to be a big year for us in terms of growth and profitability,” he added.
The COVID-19 pandemic has blocked global air travel, plunging airlines into the red. India has imposed one of the toughest blockades and even now airlines can only fly 80% of their total capacity on domestic routes.
IndiGo already had free cash of Rs 89.3 billion ($ 1.22 billion) as of March 31, 2020, a week after India went into lockdown, which it strengthened by raising more than Rs 30 billion over the next six months. through the sale and lease back of certain assets and other cost-cutting measures.
Once IndiGo can run at full capacity, it wants to increase its utilization rate to a breakeven level of around 12 hours a day, up from 10 currently, Dutta said, adding that it would also be able to fill more places and reduce unit costs.
The shares of the parent company Interglobe Aviation Ltd have doubled from pandemic lows in March 2020 to trade within 10% of their record high of October 2019.
Before the pandemic, IndiGo deployed approximately 25% of its capacity on international routes, where flights are often limited to certain countries or charters. This means that currently only around 20% of international flights operate.
International business typically offers around 10% more margins than the price-sensitive domestic market, Dutta said, adding that for now IndiGo will expand using its narrowbody fleet, meaning places like London, where it has slots. , are out.
IndiGo’s strong financial position relative to national and regional rivals such as SpiceJet Ltd, Malaysia’s AirAsia Group Bhd, and Indonesia’s Lion Air should help it dominate flights within a seven-hour radius, some analysts say.
“IndiGo has cleverly identified its bases in India and is now preparing to spread its tentacles across the subcontinent,” said Shukor Yusof, head of Malaysia-based aviation consulting firm Endau Analytics.
Despite the recent turmoil, Dutta expects the percentage of capacity deployed to international markets to increase by a few percentage points each year.
IndiGo has 580 aircraft on order with Airbus that have yet to be delivered and receives them at the rate of around 50 per year. Even so, Dutta feels that, with the growth he’s seeing, he may not have enough planes to fly wherever he wants.
“Somewhere around 2024-2025 we will probably take a break and say we could anticipate some of the deliveries and then order more for the following years,” he said.
Reporting by Aditi Shah and Jamie Freed. Editing by Mark Potter