IndiGo departs from single fleet model, opts for ATR-72

Will eye smaller Indian cities and participate in government-promoted scheme

India’s largest airline IndiGo has decided to foray in regional aviation space through smaller planes. In a significant change of strategy, the airline will be opting for a mixed fleet- a departure from the successful single fleet model and has signed a non-binding term sheet for purchasing 50 ATR-72 aircraft. “Assuming that the intended final purchase agreement is reached we expect to have 7 ATR-72 by March 2018 and induct up to 20 aircraft by December 2018,” the airline said in a statement declaring its performance for the December-March period and of FY 17.

Rival low cost airline SpiceJet has a fleet of 18 Q400 Bombardier. Among the full service carrier, national carrier Air India and Jet Airways have the ATR model of aircraft in their fleet. “When we looked at the economics of the turboprop alternatives, ATR aircraft has less fuel burn than one for the other products, ultimately the aim is to have the right cost structure that the market it serves in,” IndiGo CFO Rohit Philip said.

As a result of IndiGo’s announcement, the government’s regional connectivity scheme will get a push as it will now have a major player like IndiGo in the scheme. IndiGo management said that the airline sees an immense opportunity in the Tier 2 and Tier 3 towns of the country.

“The new civil aviation policy marks an opportunity to cater to the aspiration of the people of India and the UDAN scheme is a key component of that policy. The Tier 2 and Tier 3 cities are becoming growth engines and the aviation connectivity between them will be beneficial, we expect that increased business activity will improve the demand of air travel in this region,” IndiGo president Aditya Ghosh said during the earnings call.

Under the regional connectivity scheme, the government aims to improve connectivity between smaller towns of India by enticing airline operators to start operation between them at Rs 2,500 per seat for up to an hour of journey. The operators would be extended viability gap funding (VGF) as these are not profit making routes IndiGo’s rival SpiceJet has won after the first bidding round.

The airline also updated its fleet forecast and said that it will have 172 narrow bodies A320 instead of 153 announced earlier. This will include 47 A320 neo. With 20 ATRs, the airline will have a fleet of 200 aircraft by December 2018. “20 ATR aircraft induction coupled with close to 50 narrow body inductions by end of FY 19 is very aggressive and will test execution capabilities,” Kapil Kaul, CEO, South Asia of aviation consultancy firm CAPA said.

IndiGo said that the operations of the ATR fleet will be handled by an independent team which will be distinct from A320 operations. The team will be responsible day to day flight operations like in-flight services, dispatch and control and revenue. “ While it would be part of IndiGo, we will have a focused division that will have complete responsibility of running this division with autonomous operating function that will not overlap with our narrow body function, the advantage of this over all structure is that it would not add complexity to IndiGo’s mainline operation,” Ghosh said.

Analysts gave a mixed response when asked about the viability of the decision. “ Airlines could look at thin routes in existing set up without adding new stations and thus keep costs low, this will also allow it to fly in routes which are big enough for 2 ATR flights a day but small for A320 operations,” Ameya Joshi an aviation analyst and founder of aviation blog Network Thoughts. However an analyst said that this may lead to less efficiency in operations. “ATR network strategy is very different from A320; they will have to open many more stations as these routes are normally low density routes,” he said on condition of anonymity.

IndiGo has earlier credited their single fleet model as one of the primary reasons behind their profitable run for nine years. “The single type of airframe within our current fleet helps us reduce our expenses related to maintenance, operation, crew training, as well as manage crew rosters efficiently,” president Ghosh had told in March.