IndiGo could potentially add up to Rs 100 crore a week due to fuel charge

A look at the daily passenger load factors from the Ministry of Civil Aviation shows that IndiGo has maintained its user base and the fuel charge has not had much impact.

Early this month, IndiGo, the largest carrier in India, surprised everyone with the addition of a fuel charge to its base fare. While many expected other airlines to follow suit, that has not happened yet and with the festive season ahead of us, airlines are happy to increase the base fare instead of adding another charge to the ticket, thereby attracting unwanted publicity.

A look at the daily passenger load factors from the Ministry of Civil Aviation shows that IndiGo has maintained its user base and the fuel charge has not had much impact. From a passenger perspective, the line items in the fare are of least importance as long as the fares are competitive and across routes it seems that fares have increased as we approach the holiday season, but they haven’t increased in accordance with the fuel charge rates.

The fuel charges are based on distance and range from Rs 300 to Rs 1,000 per passenger.

Illustration: Moneycontrol

How are IndiGo’s routes structured?

Data shared exclusively for this article by intelligence and analytics firm OAG Aviation shows IndiGo operates an estimated 13,535 weekly flights, deploying 24,01,374 seats across its wide network.

The maximum deployment in terms of both frequency and seats is with routes in the 501-1,000 km range with 4,168 weekly flights offering 7,42,456 weekly seats. The longest routes, those beyond 3,501 km for which the airline has applied a fuel charge of Rs 1,000, have the least number of flights and seats. Just 180 of its 13,535 weekly frequencies operate on routes that are 3,501 km or longer with 40,150 seats a week. This includes the deployment of two B777 aircraft that are operated on a damp lease (where, unlike in a wet lease, aircraft are hired with cockpit crew but not cabin attendants).

Illustration: Moneycontrol

How much would the airline potentially make?

IndiGo recorded a passenger load factor of 84.7 percent on domestic flights in September. Its load factor on international flights has also been in the range closer to that of domestic flights, shows data released by the regulator. A look at its booking engine shows that the airline has not applied fuel charge on flights under RCS-UDAN or affordable flights segment where the airline is eligible for subsidy or exclusivity or both. The airline has a wide presence under RCS-UDAN but as a percentage of its total network, the RCS-UDAN routes remains miniscule.

The airline on an average carries 20,00,000 passengers per week going by the data for the past two months and factoring in the incremental flight deployment and average load factors. When evenly distributed against the fuel charge bands, this leads to a revenue of between Rs 95 crore and Rs 98 crore per week for the airline. This varies since the average load factors are not the same across all bands.

As we head to the peak holiday season of Dussehra and Diwali, the income will only go up from here, at least until December.

Tail note

The impact of this additional charge on the top line (and bottom line) will be known only next year when the airline declares results for Q3FY24. Typically, the third quarter is the strongest quarter for the airline in terms of both passenger numbers and revenue. The last few quarters have been a dream run for IndiGo from a passenger numbers perspective and it has set itself a target of 100 million passengers this fiscal. The target looks achievable, but whether it can be done profitably is the question.

The answer to profitability is a tough one with changing geopolitics. As if one war wasn’t enough for the world to handle, the Israel-Hamas conflict is looking bound to escalate and if it extends to the larger region, the ramifications will be difficult to factor in right now.

The airline closed Q1 with an average revenue per day of Rs 183 crore or Rs 16,683 in the quarter. The second quarter results, which are yet to be declared, will likely see a dip in revenue. With the fuel surcharge and high fares, IndiGo might well cross Rs 200 crore in revenue per day in Q3FY24. How it actually fares will be known towards the end of January or early February next year.