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For IndiGo, no evenings in Paris, no nights in London

IndiGo posted its first loss in the July quarter. It will shortly announce earnings for December.

, ET Bureau|
Updated: Jan 18, 2019, 08.20 AM IST
IndiGo operates about 55 daily flights or 15% of its total capacity overseas.
IndiGo has for now stalled its co-founder Rakesh Gangwal’s ambitious plans to fly low cost long haul flights to Europe, as costs mount and margins are squeezed, said two people in the know.

“There will be no flights to European destinations in the next six months or even a year. I wouldn’t call it a reversal but plans are always reviewed,” said one of the people cited above.

He added the regulatory approvals haven’t been all received for flights to London, the first destination in the west that IndiGo was planning to fly to in the ongoing winters. It had got slots at the city’s Gatwick airport. Those slots will lapse by March.

IndiGo posted its first reported net loss in the July-September quarter. It will shortly announce earnings for October-December.


The halt in plans is also the result of a debate within the management on whether its planned no-frills model for the flights would garner enough demand in a market which is full of highly competitive premium products from carriers such as Emirates and Singapore Airlines, said one of the persons cited above.

IndiGo operates about 55 daily flights or 15% of its total capacity overseas.

IndiGo had early last year sought initial approvals to fly to destinations such as London, Madrid and Paris. The year before, in a conference call with analysts, co-founder Gangwal, the man behind most of IndiGo’s disruptive ideas including its mammoth plane orders, had elaborated on the virtues of low-cost long flights.

“…our internal work shows that IndiGo is a natural player to take advantage of the significant and lucrative international market opportunity that India offers. Specifically, because of our large domestic network, we are well positioned to capture this massive and growing international traffic. It is about time that IndiGo enters the long-haul, international markets and takes advantage of this lucrative opportunity,” Gangwal had said, explaining in part, the carrier’s intentions to buy a stake in state-run Air India to take advantage of its international airport slots and flying rights.

The deal, however, never happened. But Gangwal had in the same call said it made “fundamental economic sense for us to enter the long-haul, international market”, irrespective of how the Air India story played out.

IndiGo initially planned to acquire bigger planes -- the 300-seater Airbus A330 or the Boeing 787 Dreamliners -- to fulfill this objective but soon dropped them as its profits fast fell due to high costs and pressure on yields. The next plan was to look at international hubs via which to route these flights. IndiGo planned to use the Airbus A321 planes, a stretched version of its staple A320, that can fly about an hour or two more.

“They looked at destinations such as Baku (Azerbaijan), Tbilisi (Georgia), Bahrain and Kuwait as potential hub locations,” said a person in the know. “...basically destinations that offer fifth freedom rights that allow an airline to fly traffic from one country to another while stopping and picking up traffic from a third.”

Meanwhile, IndiGo last month also signed its first code-share partnership with Istanbul-based Turkish Airlines, which will give its passengers potential access to 20 destinations in Turkish’s network. Code-sharing is an arrangement wherein two airlines can sell seats on each others flights. Flights to Istanbul are expected to commence shortly.

The Indian aviation industry has been facing headwinds due to an increase in fuel prices and a massive addition of flights by airlines leading to tough competition and a pressure to sell below costs to fill those flights. IndiGo has led that capacity addition exercise.

The airline plunged to its first net loss of Rs 652 crore (more than Rs 1,000 crore when not padded by tax credits and income from fixed deposits) for the July-September quarter from a net profit of Rs 551 crore a year earlier. IndiGo’s per-seat revenue has been dropping and comfortable cash reserves slowly depleting.

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