Any idea about what will happen now Pay aircraft rental without actually using them. Indigo will continue to pile up aircraft month after month. Is this why Ajay Singh of SpiceJet wants to open up a pilot training school.
Spicejet has 12 of these
the tailwinds seem to be adding up for indigo. jet has 35% plus capacity grounded, spicejet-20% , go air-20% ,air india in doldrums . All this while the market is still growing. indigo is in a real sweet spot here.
discl- InVested !!
Sitting on 50% gains, unsure whether to double down, wait and watch or partially exit.
I think it’s too early to exit, since they’ve started hiring aggressively and with Jet debacle, they’re more or less in the drivers seat but was looking for some validation.
Agree, Indigo will be a big beneficiary and could do very well in the long term provided Crude oil stays between 60 to 70 USD per barrel (Brent).
I have taken indigo flights 4-5 times in past 4 weeks. Here are my observations with respect to previous experiences -
- Cabin crew members have been reduced to 4 only. I suppose it was 5-6 earlier.
- They have discontinued serving specially prepared food. You no longer get prepared meals like rice, roti and sambji. You only get instantly prepared packaged meal or sandwiches.
- They have started boarding 45 mins before departure when it was 30mins earlier.
- You are allowed to carry only one cabin baggage. They count your bags before you get into the bus before boarding. If you are carrying more than one bag then they ask you to shift one of the bag to the checkin baggage space . The extra time they get from my point no. 3 is utilised in shifting the baggage.
- They have even stopped bottled water ( one that was given for free along with meals).
- Certain flights schedule displays on the airport are now also carrying Turkish Airline Symbol besides Indigo symbol
- Indigo has started to over book the flights. Passengers are getting SMSes to shift the flight to other schedule in exchange of credits.
Today Indigo received its 200th A320.
Total fleet count is now 215.
A320 ceo (129)
A320 neo (71)
A321 neo(1)
ATR (14)
For aviation related check from 12mins 10seconds.
Berkshire has $9 bil out of its 170bil$ total marketable securities invested in U.S. aviation stocks . If one counts the Precision Castparts(PCC) https://en.wikipedia.org/wiki/Precision_Castparts_Corp. investment @ $32.3billion . Buffett has gone All-in on Aviation in general.
At 88 he’s showing the way for how to change ones mind when the facts change.
History has taught us 1 important moat for the airline industry. The new airline always has a moat. The moat goes away as they age and a new airline takes charge and gains the moat. This attribute makes airline the worst industry for an investor. A good management in a bad industry can indeed prolong the death but it is inevitable.
Isnt this the case with all industries?
No. Take an example like Britannia. When they expand their distribution network, they reach farther. A new player who has zero distribution cannot take over the network in a single day. Same goes for Pepsi or Coke or any company which gets better over time.
In contrast, a new airline has advantage of brand new fleet and young staff. As you know a new fleet is sold subsidized by the manufacturer and Airbus or Boeing makes money from spares. But those spares and upgrades happen after 10 years. A young staff expects hike in salary as they gain experience. They cannot be retired or sent home to be replaced by a young employee. All these make a new airline gain moat over older airline. Southwest for example asked flight attendants to clean up after a flight but if United asked it’s employees to do it, the union will ask employees to strike and gather at Willis tower to fight it out.
There are factual inaccuracies in your post.
Just starting a new airline doesnt give you a MOAT! Indigo as an airline is 12 years old but its average fleet age is 5-6 years old & becoming younger as they take deliveries of brand new NEOs. So is the case with Southwest, Its fleet age is a 10 yrs although the airline has been flying since 4 decades. The real MOAT in aviation is having THE LOWEST COST. You see worldwide any airline which is the lowest cost player is making truck loads of money. Southwest , RyanAir, Easyjet , IndiGo , Air Asia etc the list is long…
I never said Indigo has an old fleet. A new fleet has advantages. You can check and verify the facts.
Profitability has reduced for Southwest. A new airline has many flexible advantages. When Southwest came up with point to point legs (direct connection) as segments, other carriers cannot do it as they have already invested in their hubs ( a central airport which acts as transit). Over time , other carriers started adjusting their connections to ensure they adjust profitability to match southwest’s segment advantages.
The age of fleet is just one example and not relevant to Southwest or Indigo. Low cost is not a moat.
A new airline which comes up with a good business plan can be even cheaper than Indigo. At that time, due to age of Indigo they may not be able to adapt. Just like having same configuration and equipment was having cost efficiency for Southwest, an old player was not able to sell their equipment and compete with Southwest.
I will say it again. A new player with innovative business plan has a moat. Old player cannot change their business plan or sell their aircrafts.
I have worked with numerous airlines for forming codeshare alliance and one can easily see that it is not easy for incumbent to change their business plan because competition is new and adventurous.
I can give many such examples. One new carrier came up with a plan to avoid CRS and GDS to use their own direct web booking. They saved a lot and the old carriers were not able to quickly respond. New carriers have an advantage over a short period. Just think about it. You are selling tickets using 1A and suddenly you ask them to step aside and start selling online through your own channel. Do you think it will work? It would back fire and that is why no airline changed their GDS association when Southwest started selling directly.
Let’s take multiple examples. Southwest started asking passengers to take their baggage to connecting flights. No other airline could do it just because Southwest is doing it. If I fly LH and have a connection to AA, I have always expected my check in baggage to be transferred when I have bag tags through to the final destination. Just because Southwest does not allow through bag tags, LH cannot implement similar cost saving measures. A new airline has created a niche business plan and customers are okay with it. If LH did the same, customers will not like it.
This guy (Pat Dorsey) has explained (time 01:18:00, 32:30, 39:00) exactly the same concept quoting Southwest. Have a look. He has explained it better than me.
Disclosure: I am an airline employee and hence my views are not from an investor point of view. I have seen airlines go bankrupt before my eyes. I will be talking to my peer at a codeshare airline and next day he will tell me his airline is in bankruptcy and project is on hold. All these factors could influence my view of this sector.
For Britannia , they will go out the business if they didn’t come with something new and keeping same distribution network.
Hope you see how patanjali is giving run to Colgate and other brands.
Take the classic case of Kraft Heinz. Nokia is another example which gone off the radar none would have expected in 2000s.
Airlines are having an entry barrier and its not so easy to someone come run and stay unless they are competitive.
My point is its survival of the fittest in any industry… As long management knows business and vision to be far ahead in competition. They survive. Its not specific to any industry.