The collapse of Jet Airways in the last quarter of the 2018-19 financial year was as incredible as it was rapid. One would have expected IndiGo, India’s largest airline by passengers and fleet, to have the exploited Jet’s misery to the hilt. After all, IndiGo boasts a domestic market share of 41 percent+, a steady order book, and a 200+ aircraft fleet. IndiGo is also no slouch in beating competitors on their best days. Here was Jet in total disarray.
Yet, IndiGo missed its guidance by 4.6 percent in the fourth quarter, according to an analysis by Network Thoughts. This is the highest miss yet since the airline moved to give guidance based on ASKs (Available Seat Kilometers) and not fleet size.
On January 23, 2019, IndiGo gave a growth guidance of 34 percent year on year growth in the fourth quarter in terms of ASK. Within weeks of this guidance, the carrier was forced to cancel some flights abruptly.
The initial blame was pinned on a storm in Delhi which led to diversions and thus a shortage of crew. This was followed by the airline admitting that it would cancel 1-2 percent of its flights until the end of March, which would roughly be 30 flights a day — indeed a small percentage. However, speculation was rife that the cancellations were either due to a shortage of pilots and/or lack of passengers since the industry-wide airfares had gone up leading to a weakening of demand.
What To Expect From Earnings
As the airline announces its fourth quarter and full-year results on May 27, 2019, it will be interesting to look at the numbers from the vantage of what it achieved and could have been achieved. In the third quarter, which is a traditionally good period, the airline offered 2.1 percent lesser ASKs than its guidance while Q4 saw the highest ever difference of 4.6 percent. This also had an impact on the full-year guidance because the airline had given a growth guidance of 30 percent but it achieved only a 27.6 percent growth in terms of ASKs.
While slots at congested airports such as Mumbai and Delhi were being given out (temporarily) only in April, Jet Airways was withdrawing rapidly from domestic markets. Jet closed a bunch of stations in South and East in the second week of February.
IndiGo, which added
one plane a week in 2018, ended the year with 208 aircraft – comprising 127 A320ceo, 66A320neo, 1 A321neo and 14 ATRs. By March, the fleet had grown to only 217 – an addition of just nine aircraft over 12 weeks. Three of those planes came only in the last few days of March, meaning they were not operational in the quarter. The slow induction of aircraft from the leasing market and the new deliveries from Airbus indicate a potential shortage of pilots, which came in at a time when it could not capitalise on the grounding of Jet Airways.
This looks like a chicken and egg problem. Did IndiGo not induct the aircraft because it was short of pilots? Or was it because of the shortage of pilots that the airline did not plan for as much induction in the first place?
The problem gets compounded when one adds the Pratt & Whitney troubles to the neo (New Engine Option) fleet. This has led to groundings in the past, with the airline having to rely on wet-lease operations to fill in the gap.
When it was time to cut the schedule, the airline focussed on lesser profitable or lossmaking routes to push up profitability at lower number of departures and ASKs operated.
Ergo, this involved cancellations on some international routes as well which enjoys higher ASKs per flight compared with domestic flights due to the stage length of the flight.
IndiGo had mentioned that 30 percent of its expansion will be on the international side. A delay in the induction of A321neo and the regulator Directorate General of Civil Aviation's (DGCA) reluctance to clear ETOPS (certification) for the A320neo aircraft until it has confidence in the Neo meant that additional international expansion was on hold. This came up even as the airline started its Istanbul operations, announced a second daily from Delhi to Istanbul but curtailed it due to the closure of airspace over Pakistan.
All this while, the airline had no choice but to watch Jet Airways reduce capacity to Hong Kong – where IndiGo operates from Bengaluru and Bangkok as well as Singapore – places where the airline has a considerable presence. Indeed, while international flights are governed by bilateral rights and the government is yet to transfer bilateral rights of Jet Airways to any airline, domestic is different.
Despite the successive closure of stations by Jet Airways in the south and east — IndiGo is present at most of these places such as Thiruvananthapuram, Kochi, Madurai, Coimbatore — the airline did not show the aggression it had in the past to get slots, start flights or poach the traffic ready on the platter. Remember, this is the same airline that have added frequencies to muscle out competitors on several routes in the past.
Poor Track Record
That said, this is not the first time that IndiGo has missed the guidance. Seven quarters have passed since the airline started giving guidance in ASKs. IndiGo has achieved or exceeded the guidance figures only in two.
In Q4FY17-18, the airline deviated 3 percent from the guidance, but that was the peak of P&W engine crisis. The other quarters have seen the airline be a percent short of guidance until the number reached 4.6 percent in Q4 FY18-19.
As the company announces its financial performance two weeks from now, one would know how operationally whether the move to reduce the number of flights helped the airline. Did the limited increase in capacity help it achieve higher yields because it also coincided with the overall glut in industry capacity. Or could it get only a fraction of the passengers because it had to accommodate passengers from its own flights that were cancelled.
India has grown the slowest in March, missing double-digit growth after four years. This proves that the market is driven by capacity and not demand. When the airfares are low, the numbers swell and vice versa. Prima facie, it looks like IndiGo missed out on what could have been a great quarter to add flights and make the most of the increased fares and the reason was lack of planning for pilots than anything else.
Ameya Joshi is the founder of aviation analysis blog NetworkThoughts.