Domestic demand has not slowed down since Diwali: IndiGo's Chief Strategy and Revenue Officer Sanjay Kumar

InterGlobe Aviation-run IndiGo, the largest airline in India in terms of market share, is hopeful that the strong passenger traffic it is seeing at the moment will sustain throughout the current quarter as well as going forward, the airline's Chief Strategy and Revenue Officer Sanjay Kumar tells Moneycontrol in an interview.

Corporate travel has started to rise in the last few weeks, he said. Kumar  also said that the government's decision to allow unbundling of fares is extremely important for the aviation industry.

Edited Excerpts:

Most airlines in India have been burning cash since the outbreak of COVID-19. What is the current situation and by when can we expect profitability?

We are almost at the pre-pandemic level as far as capacity is concerned. We are currently operating about 1,500 flights a day, a combination of domestic and international services, and we are back with about 100 percent domestic capacity utilisation.

The good thing is that our customers are growing. We also saw a load factor of 80, especially in November.

The third good thing is the bounce-back in corporate travel, especially after Diwali. We have seen a lot of positive traction among corporates.

We're quite hopeful that, in the next few weeks, things will improve even further.

The current quarter, which is the last quarter of the calendar year, is always the peak one for the airline industry. You mentioned that you expect demand to improve in the next few weeks. However, is this demand sustainable or will we see a dip again after December?

Seasonal demand is primarily a combination of two reasons: one, we see a lot of people travelling to attend marriages in northern and eastern India; the second is, of course, visiting friends and relatives.

We hope demand will sustain after the current quarter. Domestic demand has not slowed down since Diwali and we continue to see high demand for travel in India. That gives us a lot of confidence, going forward.

Moreover, a lot more people are getting vaccinated in India and are beginning to travel.

People are now looking to travel for holidays. I mean we saw a couple of weekends when there was not a single seat available for tourist destinations.

We hope demand will continue to grow and I feel the fear of travelling is kind of getting over in the minds of people. The only word of caution is that we shouldn't have any third wave in the country.

IndiGo is the largest player by market share in India. Will retaining market share be the priority of the airline, going forward, or will maintaining profitability and margins at the expense of a bit of market share be the mantra?

Market share gain has never been a priority for IndiGo. Growth opportunities have been the only priority for us.

We are committed to ensure that we are expanding our network as our fleet grows and we are able to kind of connect more and more cities, not only in the domestic market but also in the international market.

Chasing market share has never been our priority. It is a reflection of capacity growth, which will automatically have some impact on the magnitude. But we have not chased market share from our side.

The last two years have been quite difficult for the Indian aviation industry. Not only has COVID-19 hit the industry but fuel and tax rates are also on the rise. Yet, domestic fares have remained quite stable, compared to the pre-COVID days. Going forward, as the government removes the band on fares, should we expect airlines to hike rates?

Yes, as we are seeing demand returning, I expect fares to stabilise, once regulations around fare bands are removed.

Once those kind of regulations go away, I think we will only see stabilising prices because of rising input costs on the field and the foreign currency side.

I don’t expect airfares to come down, going forward, as travel demand is only rising and input costs are quite high.

Obviously, as field costs rise, there will be an element of passing compute costs to the customers.

The aviation minister says he is talking to state governments to reduce VAT on ATF. Till now, seven states have agreed to reduce VAT on jet fuel. How will this help the aviation industry?

The central government is working with state governments very carefully and pushing for tax rationalisation on ATF.

For the industry as a whole, this will help in keeping costs low and continue offering the lower fares, which are prevailing in the marketplace.

What I hope is that more and more governments, especially those of Tamil Nadu, Karnataka, Delhi and Maharashtra, which have maximum traffic, also consider reducing taxes.

Before COVID-19, regional flights were the biggest driver for the aviation industry. What do you think will be the major driver, going forward?

We have seen growth in demand from various corners. One is, of course, the large metro-to-metro market. Then, you have the Tier II cities or state capitals.

In the near term, we expect demand from large metro-to-metro cities and Tier II cities to be the biggest drivers of growth till things get back to pre-COVID-19 levels.

In the medium to long term, we expect a combination of RCS (Regional Connectivity Scheme) routes and Tier III cities, such as Rajkot, being the biggest growth drivers.

IndiGo will continue to look for opportunities to connect smaller cities, both through the UDAN scheme as well as independently. I think there is enough market opportunity within the domestic market.

The government is spending a lot of time and energy in terms of setting up airports in Tier III cities. Once you have the infrastructure ready, I think you can deploy capacity in order to not only generate connectivity but also to grow business.

So, we are quite hopeful and bullish about the initiatives taken by the Minister of Civil Aviation, which is kind of pushing the agenda of bringing costs down and creating infrastructure. This can really result in improved connectivity as well as growth.

How do you think rising competition will affect the aviation industry?

For a population of 1.3 billion people, we believe India is a highly under- penetrated market. The industry operates at a capacity of about 700 planes at the moment.

Lot more planes and airports are required. We are not overly concerned about competition. Competition is always a welcome idea.

An Airbus forecast on the growth of the Indian aviation market says the aircraft fleet is expected to grow around 10-12 percent till 2035.

India is also tipped to become the second-largest market in the world, after the US, in the next decade.

We are also seeing constant expansion of airport infrastructure in India, and the government is actively working at increasing airport infrastructure.

So, as long as we keep seeing infrastructure improve in India, we will see more aircraft and many more airlines coming in.

There have been a lot of talks between the government and the industry on the unbundling of fares. How important is fare-unbundling in reducing fares even further?

Given that India is an extremely price-sensitive market, unbundling is a must. This will not only open up the market for newer passengers but will also allow customers who want extra facilities to opt for more premium services.

So, it is extremely important for the Indian market where customers are looking for value.

The DGCA has recently announced that it will allow airlines to unbundle fares of check-in baggage. This is an extremely positive step towards unbundling of fares.

Is IndiGo looking to charge passengers for checked-in baggage?

We can exercise that option only after the current regulations around the fare band are removed. We are always evaluating what should be the best option for us and for our customers.