Sept. 27 (Bloomberg) -- IndiGo, India’s biggest domestic carrier by market share, plans to more than double its fleet in a decade as part of a goal to eventually become a 1,000-plane operator by tapping the nation’s rising travel demand.
IndiGo will have at least 150 planes by 2023, President Aditya Ghosh said in an interview. The budget airline now has 70 Airbus SAS A320s, he said, without giving a timeframe for building the fleet to 1,000 aircraft.
The privately held company’s expansion plans mirror that of Indonesia’s PT Lion Mentari Airlines and Malaysia’s AirAsia Bhd. as Asia’s economic growth enables more people to fly for the first time. Demand from India and China and global growth of low-fare carriers will spur a market for $4.4 trillion worth of commercial planes in the next two decades, according to Airbus.
“The long term potential of the Indian market is pretty huge,” said Kapil Kaul, the head of the Indian unit of CAPA Centre for Aviation, which advises airlines. “I don’t see any reason why such an ambition is not possible.”
In January 2011, IndiGo ordered 180 planes worth $15 billion from Airbus, the biggest order in commercial aviation history at that time. Before that, the carrier had ordered 100 aircraft from the same manufacturer. It currently has an order backlog of 200 planes and some of these will be replacing its existing aircraft, Ghosh said.
The carrier is owned by InterGlobe Enterprises Ltd. that has its origins in a travel company founded by Kapil Bhatia in 1964. Rakesh Gangwal, a former US Airways chief executive officer was a co-founder of IndiGo, which started services in August 2006.
The budget airline had a profit of 7.87 billion rupees ($127 million) in the year ended March 31, its fifth straight profitable year, Ghosh said in the Sept. 24 interview. In comparison, Jet Airways (India) Ltd. and state-owned Air India Ltd. have lost money for years as the region’s highest fuel costs and cut-rate fares eroded gains from carrying more passengers.
Shares of Jet fell 0.8 percent, snapping two days of gains, to 349.80 rupees in Mumbai. The stock has dropped 37 percent this year, while SpiceJet Ltd., the nation’s only listed budget carrier, has lost 54 percent.
India’s domestic airline industry had a combined loss of 98 billion rupees in the 12 months ended March 31, according to government data. Jet hasn’t made an annual consolidated profit in six years, according to data compiled by Bloomberg. Liquor baron Vijay Mallya’s Kingfisher Airlines Ltd. ended operations in October after struggling to pay salaries and losses widened.
As much as 89 percent of aircraft in IndiGo’s fleet are financed through sale and leaseback agreements, Ghosh said. Under a leaseback agreement, a third party takes ownership of a plane ordered by an airline and rents it to the carrier under lease. The deals allow airlines to avoid burdening balance sheets, eliminate the need to tap commercial bank finance and protect them from a potential drop in used-plane prices.
Ghosh denied that the sale and leaseback deals helped IndiGo become profitable.
“If leasing of aircraft was the way to profitability, then anybody who leases more number of planes should be able to make more money,” he said. “There’s no relationship between the planes that are leased and profit.”
Competition is set to intensify for IndiGo as industrywide losses haven’t deterred more carriers from entering India, the world’s second-most populous nation. Singapore Airlines Ltd. last week announced a full-service venture with Tata Group. AirAsia also teamed up with Tata this year for a discount airline, while Etihad Airways PJSC agreed to buy a stake in Jet.
Indian airlines also have to contend with a weaker rupee and the lack of adequate infrastructure. Rising competition may affect the ability of airlines to price fares viably, said Harsh Vardhan, chairman of New Delhi-based Starair Consulting.
“AirAsia with its established credentials may impact IndiGo,” said Vardhan. IndiGo’s plans to scale up operations “depend on how they continue to perform. The sector is highly fragile and today’s performance is no guarantee for tomorrow’s success.”
IndiGo edged past Jet last year to become the nation’s biggest by market share. In August, the carrier’s flights were punctual 91.4 percent of the time, ahead of all other domestic carriers, data form the nation’s aviation regulator show.
The budget operator will fund its expansion using own money, Ghosh said. It will also consider options including leases, export credit facilities and outright purchase.
AirAsia group, operator of Southeast Asia’s biggest discount carrier, had a fleet of 130 A320s as of Aug. 21. In December, the carrier ordered 100 A320s, in addition to the 200 it had agreed in 2011 to purchase. It plans to take delivery of 351 more planes by 2026 from Airbus.
Indonesia’s Lion Air agreed to buy 234 Airbus planes in March, its second commitment in two years to purchase more than 200 planes. As of April, the airline had a total of 700 planes on order, including turboprop aircraft.
The number of air passengers in India is forecast to triple to 452 million by 2020, according to a report by CAPA and SITA. Asia’s third-largest economy currently has 441 commercial aircraft, according to government data. Air India, the nation’s oldest, has a fleet of 108 planes. Jet, which started flying in 1993, has 100 aircraft, according to its website.
“A million more travelers every month will be coming in for the next 40 months” in India, Ghosh said. “There have to be airlines and aircraft to manage and carry that traffic. That’s what we’re totally focused on.”
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