Indigo: Cost Growth In The Airline Industry

Indian airline industry has been growing at a rapid pace, as reflected by the increase in traffic over the years. There has been a significant increase in passenger traffic of 12.47% compared to the last year and a compounded annual growth rate in freight traffic of 8.23% and 6.7% over FY’2006-15 for domestic and international traffic respectively. Though the aviation industry has been experiencing a financial crunch due to decreasing airline prices, the decrease in fuel prices in FY’15-16 has come as a timely boost for the industry, and the results are getting reflected in the financial statements of the airline companies.

In this report, we will look at one of the more prominent players of the current Indian airline industry- A player

Listed below are some of the factors that enable Indigo achieve this:

• Single type of aircraft: As per DGCA Indigo has 97 A-320-232 aircrafts as compared to its competitors who uses different types of aircrafts ranging from 3 to 9. This results in greater flexibility as same crew (pilots, ground staff, cabin crew) can be used and avoids costs involved in training and hiring staff.

• Low average fleet age: Indigo has an average fleet age of less than 3 years which means less maintenance and attrition cost. All its aircrafts are leased for a period of 5-6 years which avoids D-check done after 8

• Lesser routes more frequency: With 633 daily flights and 38 destinations Indigo has daily aircraft utilization of 11.4 hours as compared to competitors like spice jet which servers more destinations but has low utilization rate.

• Low turnaround time: Indigo has the fastest turnaround time of approximately 30 min, reasons being single aircraft type which helps in saving time taken by the crew and short stage length (around 1.5 hours) which means it don’t have to stock meals in a larger quantity.

• Employee aircraft ratio: Indigo has around 110 employees per aircraft as compared to Jet Airway’s 130 and Air India’s 262

• Tightly framed maintenance contracts: Indigo has a Power by the Hour contract with International Aero Engines (IAE), which provides the engines that put the onus of performance delivery on the manufacturer. IndiGo has similar agreements with Airbus, as well as with the vendors for other critical components. It means that Indigo does not have to pull out planes from service for repairs and also does not have to maintain a large inventory of