Air India parts may take time to digest, but IndiGo is one for the long haul
With domestic passenger traffic crossing the $ 10 million mark for the first time in a month of May 2017 and the occupancy factor touching a new high of 88.9 percent, Indian carriers seem to fly high.
The aviation industry, although highly competitive, has a good place with beneficial fuel prices and increased passenger traffic generated by the influx of the middle class.
In this environment, we believe that players with excellent networks and solid financial performance and are well placed.
Interglobe Aviation, known as indigo, the market leader in the domestic sky, now aims to announce its intention to acquire the international operations of Air India and Air India Express.
Is it too ambitious, or is the selection of parts of the national cherry portfolio a well-thought-out strategy that will generate long-term value?
Domestic traffic in India grew by 20 percent composed by AFS-14-17, winning rail market in first-class rail rail traffic registered a growth of rail traffic and lean non-suburban passengers has declined.
The construction industry and additional capacity placed orders for almost 829 aircraft (the current fleet size is 498).
According to an IDFC report, 251 additional aircraft will be added to the fleet before August 20, which will result in an increase in capacity, measured by ASKM (kilometers of seats available), 15% consisted of FY17-20 This additional capacity is expected to increase 17 percent of passenger traffic.
The industry has experienced a load factor of 78.8% in FY 2005 to 81.7% in year 17. The load factor is estimated to be stable at around 80% of additional passenger growth capacity.
The paradigm shift in the industry due to lower fuel prices – from above $ 100 per barrel to the current level of nearly $ 45 per barrel.
As the only fuel contributes about 30 to 35 percent of an airline’s total cost, the price drop has led many airlines to be profitable after posting losses for years.
IndiGo dominates the sky of India with a market share of 40 percent; If international traffic is launched, its market share remains healthy, or 34.9%.
Its passenger traffic recorded a significant growth of nearly 28 percent compared to FY12-17 compound, against industry growth of about 10 percent on the back of its unadorned products at competitive prices, reach and performance in time
IndiGo navigates well in the sky due to operational efficiency. The company has focused on reducing each component that appears in its cost structure.
The cost per unit of Indigo is lower compared to other companies in the sector, as shown in the following table. Even when oil prices were high, the company was able to consistently earn profits. Now, with low prices, you expect the benefits to take off.
The company also has a young fleet (average age of five), which gives it more energy efficiency. Using a single aircraft configuration and class also allows you to reduce training costs.
In addition, the company was able to use its assets better than its competitors: the use of airplanes is 12.7 hours per day (SpiceJet: 10 hours a day).