Carriers Brave The Tough Times

Rising fuel costs, induction of more planes, competition and demonetisation played havoc with the financials of carriers in the last quarter of 2016. In fact, while the airlines under review – IndiGo, SpiceJet and Jet Airways – faced problems, all of them look forward to growth with profits in 2017.

- Aditya Ghosh

An airpocket for IndiGo 

The quarter that ended on December 31, 2016 was, perhaps, the first one that saw IndiGo faltering. Hit by a number of factors —high fuel costs, low yields, competition and the government's demonetisation move — the earnings of ₹487.3 crores were not according to analysts’ estimates.

It was the first time that IndiGo’s operational performance went down. Ontime performance — one of the carrier’s strengths and pride — saw a downfall in each month in the quarter (according to DGCA reports that only takes into consideration arrivals and departures from the four private metro airports of Bengaluru, Hyderabad, Mumbai and New Delhi). In October, IndiGo’s OTP was 81 percent; down to 72 percent in November and 62 percent in December. Though this downward trend was partly because of the foggy weather and congestion, it was also due to the nonperformance of the A320NEOs. The carrier parks a large number of its planes in Delhi and Bengaluru and both places experienced foggy conditions.

Though IndiGo adjusted its ticket prices to get the highest load factors (load factor for the quarter was 87 percent on a fleet of 126 aircraft), there was a drop of 25 percent in profit, driven by lower yields and higher costs. Capacity went up by 34 percent and traffic too grew by 38 percent. However, the higher volumes could not counter the low yields: 10 percent in October, 20 percent in November and 17 percent in December. IndiGo’s woes – or for that matter all the LCCs woes – were compounded when Air India and Jet Airways brought in widebodies for domestic routes. Additional capacity from all airlines in winter resulted in yield declines.