IndiGo is nearing a deal for another massive aircraft order as the Low-Cost Carrier (LCC) seeks to stamp its authority as the dominant airline in India’s commercial aviation market.
The airline, which has ordered 830 commercial jetliners from Airbus since 2005, is now eyeing a deal for another 500 A320 jetliners from the European aircraft manufacturer.
In a news report, Reuters stated that Airbus had emerged as the leading contender for the order for 500 jetliners, and the deal could be worth an estimated $50 billion. Airlines, however, typically secure sizeable discounts for such large aircraft deals. Boeing was also in the race with its 787 MAX single-aisle jetliner. The report also stated that IndiGo was eyeing the purchase of 25 twin-aisle jetliners, for which Airbus’ A330neo (new engine option) and Boeing’s 787 compete.
While it is not certain when the deal will be inked, the upcoming Paris Airshow, to be held later this month, could be the ideal venue and overshadow Air India’s order for 470 jetliners from Airbus and Boeing announced this February.
Tata Group-owned Air India had committed in February to purchase 250 Airbus aircraft - 140 A320neos, 70 A321neos, 34 A350-1000s and six A350-900 wide-body jets. However, the orders are yet to reflect in Airbus’s orders and deliveries summary (as of 30th April). The now-grounded LCC, Go First, had 144 A320neo family aircraft on order from Airbus and had taken delivery of only 56 before the airline stopped flying due to financial troubles.
Low-Cost Behemoth
IndiGo is India’s largest passenger airline with a domestic market share of 57.5% (as of April, 2023) and has previously used large aircraft orders to extract sizeable concessions from aircraft manufacturers, lessors and engine providers. Due to this, the cost-efficiencies and favourable terms earned by IndiGo have allowed it to leapfrog over its LCC competitors such as SpiceJet, Go First and the erstwhile Air Asia India (now Air India Express).
To date, IndiGo has placed orders with Airbus for a whopping 830 A320 family jetliners, which were inked in 2005, 2011, 2015 and 2019, respectively. While IndiGo’s first order was for 100 A320ceo (current engine option) family aircraft, its largest was a firm order in 2019 for 300 A320neo Family aircraft. This order comprised a mix of A320neo, A321neo and A321XLR aircraft and took its total number of A320neo aircraft on order to 730. It took delivery of its first A320neo aircraft in March 2016, which was powered with Pratt & Whitney’s troubled Geared Turbofan (GTF) engines.
Speaking at its Q4FY23 conference call recently, the airline’s CFO, Gaurav Negi, said the airline was looking to double in size and scale by the decade's end. The LCC presently has 32,000 employees and will remain in expansion mode for the next seven years. It is looking to hire around 5,000 employees in the near term.
The airline presently has a fleet of just over 300 aircraft. The fleet comprises 305 aircraft, spread across 162 A320neos, 79 A321neos, 21 A320ceos and 39 ATRs, two A321 freighters, and two B777s. The B77S are its only twin-aisle aircraft and are on damp lease from Turkish Airlines. Of its A320 family and ATR fleet, 289 are on operating lease, and 14 aircraft are owned by the airline or finance lease. IndiGo added 29 new aircraft in FY23 compared to FY22 and is looking to induct 40-50 new aircraft in FY24. Its spate of aircraft orders has resulted in an average fleet age of 3.5 years, and the LCC’s early investments in new technology and new aircraft have made it one of the lowest CO2-emitting airlines in the world.
Bullish On Growth
At the investor conference call, IndiGo’s CEO Pieter Elbers said the airline’s performance in FY23 marked a year of recovery and growth as demand remained robust. IndiGo doubled its revenue for FY23 compared to the previous year. Negi said IndiGo expects to grow broadly north of the mid-teens in FY24 compared to FY23.
Elbers added that although Indian aviation has grown at an impressive (passenger) CAGR of around 13% in the seven years pre-COVID, the country is still highly underpenetrated in domestic and international air travel.
Elbers said the airline had set its long-term direction in Q3FY23 and defined three strategic pillars - Reassure, Develop and Create to support its growth plans. It was looking to double in size and scale by the end of this decade. “In other words, something that took us around 16 years will now be achieved in less than half of that timeframe,” he said.
Strong Foundation
Under the Reassure pillar, IndiGo will focus on the basics that have made the LCC successful: on-time performance, courteous and hassle-free service, affordable fares, and an extensive network. IndiGo served 86 million passengers in FY23, an increase of 72% compared to FY22. It is targeting to serve 100 million customers in FY24. The airline continues to maintain its reputation for punctuality, despite the issues with a portion of its A320neo fleet grounded due to engine trouble.
IndiGo continues to add new destinations to its network, such as flights to Ras Al Khaimah, Itanagar, Mopa-Goa, Nashik and Dharmshala, in addition to new routes, including Pune to Varanasi, Indore to Surat and Jaipur to Bhopal and adding more frequencies from destinations like Mumbai, Kolkata, Bengaluru, Hyderabad and Cochin.
The Develop pillar is key to the LCC’s growth plans, in which it is developing and aligning its people, processes, and technology in line with the growing size and scale of the company. This has allowed the carrier to improve aircraft utilisation levels and introduce measures such as Electronic Flight Bags, removing paper files from the aircraft, reduced weight by 40 kg per aircraft. It is also scaling up its training pipeline and presently can train more than 1,850 employees per day at its state-of-the-art learning ‘CentreIfly’. Importantly, the LCC has commenced foundational work for a customer loyalty programme. The airline will continue growing its freighter business and add a third aircraft later this year.
The third pillar, ‘Create’, targets the next phase of growth, strengthening its domestic network and growing its international operations. Through its codeshare partner Turkish Airlines, IndiGo now serves 33 European destinations. It is looking to further strengthen its presence in Central & Southeast Asia and the Middle East by adding more routes and destinations and recently became the first Indian carrier to commence international operations from Bhubaneswar and will soon connect the city to Singapore. Going forward, the airline will operate 44 weekly flights to Singapore from seven Indian destinations.
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