Is IndiGo Massive Plane Order Practical?

Sunday, 2nd November 2014 at 08:29am

One of the world's two largest aircraft manufacturers, Airbus, shared headlines this year with a number of airline operators who placed huge plane orders with a combined price tag of hundreds of billion of dollars.

Last month, IndiGo made headlines when it signed with Airbus a memorandum of understanding (MoU) for a whopping order of 250 A320neo jets worth an equally staggering $25.7 billion for the lucky aircraft manufacturer.

With the projected growth to surpass the world average in the next ten years, airline companies from Asia are in a race to build up their fleet to meet travel demands within the region. The total plane orders from Asian airlines in the last two years alone are in several hundreds that will keep Airbus factories across the world abuzz with activities for many years to come.

IndiGo, the only profitable Indian carrier has been consistently expanding its market share in the domestic sector capturing more than 30% and is the only local airline that is pushing for fleet expansion.

The 250 A320neo jets that it ordered from Airbus have surpassed AirAsia's firm orders with the aircraft company as its biggest customer. The order has become the biggest single order ever from an airline for the world's second largest aircraft manufacturing company

IndiGo has already placed a firm order of 180 A320neos in 2011, bringing its total order with Airbus to 430 planes valued at $40 billion at list price.

Indian airlines are generally not in the pink of health for the past five years except for IndiGo which has been reaping profits and a growing market share.

The low-cost carrier, for instance, has netted earnings of more than $130 million for fiscal year ending March 2013. In the following fiscal year, despite the tough times facing the country's aviation industry, the airline managed to earn a profit of a little more than $100 million.

This year, its marker share has grown to 32%, making it the largest airline company in India, carrying a total of 15.2 million passengers. SpiceJet was a distant second with a 18.7% share of the market.

The strategic decisions that the management has made during its entire 8 years in operation has been praised by industry analysts. For example, IndiGo is the only Indian carrier to employ a sale-and-lease-back business model for a number of aircraft in its fleet. This gives the carrier an edge over its rivals.

By: Pete Lee.