Indigo: Soaring High and Ruling the Indian Sky

IndiGo: Soaring High and Ruling the Indian Sky - The Story of IndiGo's Dominance in the Indian Aviation Sector

The Indian aviation sector has witnessed a remarkable transformation over the past few decades, evolving from a niche market to a vibrant and dynamic industry. This growth is a result of a combination of factors, including a burgeoning middle class, increasing disposable incomes, and improved infrastructure. IndiGo, India's largest airline, has played a pivotal role in shaping this transformation, establishing itself as a dominant force in the Indian aviation landscape.

The Indian aviation sector is growing at a rapid pace with an estimated CAGR of 10%. This growth is being fueled by a number of factors, including:

A growing middle class: India's middle class is expected to reach 600 million by 2030, creating a massive demand for air travel. Increasing disposable incomes: As Indians' disposable incomes rise, they are increasingly spending on travel and leisure, including air travel. Improved infrastructure: The Indian government has invested heavily in improving airport infrastructure, making air travel more accessible and affordable.

IndiGo's Dominance in the Indian Aviation Sector

Founded in 2006, IndiGo has rapidly ascended to become India's largest airline, with a market share of over 53%. The airline's success can be attributed to a number of factors, including:

Low-cost model: IndiGo operates on a low-cost model, which has made it one of the most affordable airlines in India. Extensive network: IndiGo has a vast network of over 100 destinations, including 70 domestic and 24 international destinations. Modern fleet: IndiGo operates a modern fleet of over 300 aircraft, which are some of the most fuel-efficient in the world. Customer focus: IndiGo is known for its customer-centric approach which has helped it build a loyal customer base.

IndiGo: The Number Story

It is fascinating to have a glance at the Financial Performance of Indigo in the past two Financial years. The lean patch that owed to the Covid-19 strike had its share in the impoverished financials of almost all carrier businesses and so did Indigo in FY22 with the losses accumulating to a staggering figure of 61710.25 Mn INR. But with the lockdown over and the economy and life back to normal Indigo is on the path of recovery at a rapid pace. FY23 shows that losses were reduced to 3167 Mn INR. That is a walloping 1740% bouncing back but inflated due to the preceding lean year. But a mere look at the Net Income alone or the traditional matrices like Net Profitability Ratio, RI or the EPS will not tell us the real story of the business. Precisely due to these flows in Financial Reporting Sterns and Stewarts suggested the Value-Based Matrices like Economic Value Added, Market Value Added, Future growth value, and Total Shareholder Returns. 

Here is a quick glance through the VBM of IndiGo Airlines for the past two years:

The Economic Value added reveals a better picture of the business than the mere interpretation of the Net Income of the company. Even though the company incurs losses even in FY23, the business has created value as EVA is 4754.97 Mn INR. The residual income is not worth mentioning as the company incurred losses but there is a drastic improvement from the FY22 with a growth of nearly 1747% in its residual income. That is indeed some achievement but the figures seem abnormal owing to the financial crisis the business suffered during the pandemic.

The Market Value Added is also further growing in FY23 and the good sign is that the MVA portion that is coming from the Future Growth Perspective reduced compared to the previous year and it owes 40% of its current value of operations.

The EVA spread which is the net of ROIC upon WACC has also significantly improved showing the progress the business is making and it has become positive, implying that the business exceeds the minimum expected returns. 

IndiGo's Future Outlook

With its strong track record of success, IndiGo is well-positioned to maintain its dominance in the Indian aviation sector. The airline is expected to continue to grow its network and fleet and expand its international presence. IndiGo is also committed to innovation and is investing in emerging technologies like machine learning and artificial intelligence to improve its operations and enhance the customer experience.

Conclusion

IndiGo's dominance in the Indian aviation sector is a testament to its vision of giving wings to the nations and its commitment to providing affordable, reliable, and customer-centric air travel. The airline's success is also a reflection of the growth and potential of the Indian aviation sector. As India continues to develop, IndiGo is poised to play an even more significant role in connecting people and businesses across the country and around the world.