IndiGo to fight an aggressive price war despite fall in profit

India’s largest airline IndiGo sounded alarm over low fares saying they are not sustainable. However, the airline vowed to keep discounting fares amidst an expanding price war which resulted in its net profit to fall by Rs 3,227 million in the fourth quarter sales.

 
IndiGo will continue fighting competition with cheap tickets across network despite the short-term pain, Chief Financial Officer Rohit Philip told investors on Wednesday. “Our competition has been offering low fares through packages, coupons etc. These fare levels at current fuel price are not sustainable, but we will continue matching the competition,” Philip said.

A combination of low fares especially, creeping fuel price, and a fluctuating exchange rate saw the airline report a dip of 73 percent in net profit to Rs 1,176 million as compared to Rs 4,403 million in the corresponding period last year. IndiGo said that the trend of low fare was more prominent closer to the date of travel especially within 0-15 days of travel. 

“The trend is more visible during the window of 0-15 days impacting our yields,” Philip said. Airlines normally price their seats higher near closer to the date of travel.

“Attempts to build advance base loads are not working anymore, as passengers now expect fares to drop close to the date of travel. As a result, a virtual bank run happens close to departure as all airlines try to dump excess seats at steep discounts, given the less-than-normal advance build-up. Also, there is no incentive for passengers buying tickets,” an executive of a different airline said.

A survey by travel portal Cleartrip.com showed that fares were at least 30 percent lower this year even during April-end which is normally a peak season for airlines due to the beginning of the summer vacation in India’s academic calendar, leading to a travel spurt which encourages airlines to raise fares 

IndiGo’s revenue available per seat kilometer (RASK) fell by 3.2 percent from Rs 3.40 from Rs 3.62 in the same period last year. RASK is the amount that an airline earns by flying one seat for a kilometer. Similarly an inching fuel price coupled with old planes in the fleet due to the grounding of 11 A320 neo planes increased the company’s unit cost by 7.4 percent from Rs 3.08 to Rs 3.30.

However, allaying concern of investors, Philip said that the company’s low-cost structure gives it an advantage which it will use to match low fares. “As we have told you earlier not matching the price of the competition were a mistake and we will not commit that again, the airline with lowest cost structure must prevail,” Philip said.