How IndiGo makes money even as others bleed

At a time when most airlines in India are recording big losses, Indigo Airlines, the country’s largest low cost carrrier, announced a fivefold increase in net profit to Rs 787 crore for 2012-13 in October. Rivals Jet Airways and SpiceJet together made a loss of over Rs 671 crore in the financial year. This was IndiGo’s fifth straight year of profit, while the industry lost Rs 46,000 crore in the five-year period. In the period, Kingfisher Airlines went belly up. State-owned Air India, despite the infusion of fresh equity from the government and a slight improvement in performance, is still struggling.

The huge profit for 2012-13 happened in spite of adverse market conditions. Fuel costs went up 13 per cent, the rupee weakened 7 per cent and domestic traffic decreased 3.4 per cent in 2012 over the previous year. So, how did IndiGo report so much profit? Aditya Ghosh, IndiGo’s low-profile CEO who entered the industry accidentally as a legal counsel to the airline, makes it sound simple: “We increased revenues because of capacity expansion, improved yields, increased efficiency and contained costs; and there were no major fare wars last year.”

That might sound simple but, as most aviation experts will tell you, it is difficult to implement on ground. Ghosh and his team took a calculated gamble: they followed a contrarian strategy last year amidst the slowdown and increased capacity and introduced new flights in order to get more passengers. The airline increased its capacity by over 39 per cent, even while the total industry capacity fell by 4 per cent.

Read the full report here, Business Standard


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