The low cost domestic airline IndiGo has emerged as a giant in the airlines sector with its $26 billion deal with Airbus that adds another 250 single-aisle luxury planes to its fleet. There is an option to buy 100 more, and this makes India stand out in the global business scenario and changes its image to a brighter one.
India, the ninth largest aviation market has shown tremendous global presence, and will go on to become one of the five fastest growing markets by the year 2034. These are a lot of good news and competition in store for the aviation sector of India on the global level with the entry of overseas airline giants like Etihad and Air Asia in invest in the domestic sector.
Not long ago, a bunch of people met with the Sales Chief John Leahy of Airbus in his country house to discuss, bargain, and work out a decent deal that suits both the parties. Another meeting took place a few weeks ago to settle the final terms this deal and it looked every bit like a typical aircraft deal full of some old friendship jokes and some hardcore negotiations.
The kind of money discussed in this deal was about $40 billion for about 430 carriers to the newly emerged but country’s biggest private airline IndiGo that was started eight years ago. This airline is in the verge of huge expansion and the world aviation industry has set its eyes upon this business house. Senior executives of the airline industry are hoping that this move will give a great boost to the weak economy in general and the weaker aviation sector in particular. The government is also keen on working towards the development of this sector by building more airports, cut down jet fuel tax, slash other costs and provide facilities for new markets to emerge.
Indigo has been eyeing the expanding middle class, higher income slabs, low taxation, rapid urbanization, greater exposure to luxuries as some of the factors that can bring a boom to the aviation sector. It already is one of the fastest growing markets and is expected to grow 75% more in the next six years and bound to grow bigger than 217 million.
Despite some big names like SpiceJet, Jet Airways, and the state-controlled Air India losing money, IndiGo is the only major operator that is not suffering losses, although the sector in general is predicted to suffer a setback of about $1.4 billion this financial year too.
IndiGo has a strategy to keep the losses down and sail in profits as it buys big bulks of planes and leases them out to companies. This helps them recover the full or partial cost of the planes and within six years it sells them off to the same or different companies to avoid heavy depreciation and maintenance costs. This keep the companies own costs low and profit margin high.
The new aircrafts are not meant to replace the old ones but for expansion and this big number provides the opportunity to penetrate the “highly underpenetrated” market, says IndiGo management. This deal being one of the largest in the history of aviation industry has plans to renovate and modernize the sector with its far sightedness and keeping in mind the track record of the planning efficiency, there is hardly any room for doubt that IndiGo knows what it is talking about and how to accomplish it.
Increasing competition and foreign investment has made IndiGo’s journey risky and full of pitfalls. There are chances that other airlines are not available to borrow the planes by the time IndiGo gets its jets delivered and it would be left wondering about where to use them. It all depends on how aggressively giants like Etihad and Air Asia behave now.