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India’s low fare carriers SpiceJet and IndiGo power ahead with profits

While India’s three legacy carriers Air India, Jet Airways, and Kingfisher Airlines struggle with mounting losses, the low fare carriers IndiGo and SpiceJet are making steady progress and have declared profits. (Read related SpiceJet story).

Over the year the two airlines have followed similar yet distinctly different business models from each other on their path to profitability and increased market share — IndiGo at 14.2% and SpiceJet close behind at 13.2%.

Yet, these two carriers today offer services both free and paid which makes them virtually identical to their full service carriers, with the exception of free food served on board, which makes wonder how their are in the black while the big three are on financial life support ? The simple answer is efficient operations streams. Both SpiceJet and IndiGo have a cost per seat kilometre which is half that of the low fare offerings of their legacy competitors.

While SpiceJet is keeping it’s Boeing 737 aircraft procurement on hold, partly due to the slowdown, and partly keeping in view their plans to commence international services next year, IndiGo has been busy fulfilling part of it’s mammoth 100 Airbus A320-232 aircraft order, adding one every quarter and expanding its domestic footprint.

High efficiency and predictability in terms of one time departures have made both these airlines favourites amongst travellers — a lesson being learned very quickly by their competitors.

Earlier this year we had written about the “fine strokes” IndiGo is making to keep costs under control and Bangalore Aviation was the only online publication to be invited for a meet with SpiceJet CEO Sanjay Aggarwal. Over the last week two newspapers have done very interesting profiles of both airlines which are well worth reading. The Mint on IndiGo and The Business Standard did an interview with SpiceJet’s Aggarwal.

Recently we did a comparison of Indian low fare carriers vs. the low cost carriers in other parts of the world. Aggarwal’s reply on the cost structures faced by airlines in India summarises the reason why Indian low fare carriers cannot follow the tactics of a RyanAir to be low COST.

How do you manage to keep your cost to half that of what full-service carriers cost?
Many of the charges like those levied by airports or the aviation turbine fuel are the same for both full-service carriers and us. In fact, since our planes are newer, our lease charges tend to be higher. So our scope to cut costs is quite limited, especially in comparison to LCCs abroad which fly to different airports where charges are lower. In India, we are able to bring our cost down by utilising aircraft more — on average, our utilisation of aircraft is around 15 per cent more than that of the full-service carriers. Once we get to fly international flights, this will allow us to buy vastly cheaper fuel, apart from tapping into a growing demand segment — so flying international is an important part of lowering our cost structures further.

Despite the massive reduction in air fares over the last decade, in India air travel is still a luxury and Indians expect to be pampered even at the back of the bus. SpiceJet and IndiGo both deliver a value for money and this is the winning solution in these tough times.

About Devesh Agarwal

A electronics and automotive product management, marketing and branding expert, he was awarded a silver medal at the Lockheed Martin innovation competition 2010. He is ranked 6th on Mashable's list of aviation pros on Twitter and in addition to Bangalore Aviation, he has contributed to leading publications like Aviation Week, Conde Nast Traveller India, The Economic Times, and The Mint (a Wall Street Journal content partner). He remains a frequent flier and shares the good, the bad, and the ugly about the Indian aviation industry without fear or favour.

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