IndiGo Again Goes on Bulk Buying Spree, this Time with 250 Airbus A320neos

When other Indian carriers are busy watch their plummeting profitability, IndiGo has ventured on another bulk buying spree of airplanes. In a recent record-breaking order of 250 Airbus A320neos, IndiGo plans to deepen and strengthen its market base in Indian aviation sector. With this order IndiGo has retained its faith in Airbus yet again, this time in the new and the more fuel efficient version of the aircraft- the A320neos. These are also single-aisle, narrow bodied airplane like their previous avatars.

In an industry and in a market like India where aviation fuel costs contribute to about 40 percent of the operational costs, going for the fuel efficient airplanes is aimed to reduce the costs of operations with the ultimate aim of providing cheap air tickets to the customers. It is also noteworthy that the airline will be facing immense competition in years to come as Tatas make foray with AirAsia, the famed LCC of Malaysia.

The deal augurs good for Airbus as it has seen cancellation of orders from other Asian carriers such as AirAsia and Tiger Airways recently.

IndiGo Repeats The Profit Story in FY14

Its the sixth straight year in which IndiGo has posted a profit. The only other airline to do so is GoAir. IndiGo posted Rs 317 crore profit on a total revenue of Rs 11,117 crore. While the revenue rose 18%, the profits were actually half of the previous year. The decline in profitability is attributed to two main reasons:

1. Exchange Rate Fluctuations: Currency fluctuations have eaten into the profits of the airline in a significant way. IndiGo makes a substantial amount of its payments in US Dollars (as much as 70%) and this makes it prohibitively costly to pay when Rupee gets weak. At the same time, the revenues of airline in US dollars are rather limited due to the limited international destinations that it covers.
2. Price-wars: Indian skies are jammed with the price wars among rival airlines. IndiGo, though a reluctant player, had to enter the price wars in order to retain its customer base. Heavy discounts by rival airlines were chased by IndiGo which led to deterioration of profitability. However, the carrier has managed to retain profitability this year as well while its rivals such as Spicejet, have accumulated losses.

IndiGo is also aware of the customer trust in its operations and is aware of its increasing customer base. This also requires the airline to keep on adding capacity by increasing its fleet so that the increasing rush of passengers is duly met and the chances of garnering more revenues and profits are not lost. IndiGo added another 11 planes in the last financial year, taking its total tally to 77.