Apocryphal or not, the story has more than a grain of truth to it. From fugitive liquor baron Vijay Mallya to erstwhile textile king Nusli Wadia, from textiles-to-tobacco billionaire SK Modi to the once-master of the Indian skies Naresh Goyal, India’s civil aviation history is littered with examples of billionaires who have gambled their fortunes on this business and lost.

Even governments, with nearly inexhaustible funds, have thrown in the towel. The government of India infused an estimated ₹1 lakh crore to keep Air India afloat before selling it to the Tatas for ₹2,400 crore and saddling the conglomerate with ₹61,000 crore of legacy debt and liabilities. Dutch carrier KLM, the world’s oldest airline in operation, is still afloat thanks to a merger with another government-backed airline, Air France. Meanwhile, Italian carrier AlItalia shut shop in 2021 after going bust.

This is why Indigo’s spectacular Q1 results are a cause for cheer. India’s largest airline by both fleet size and market share logged profit after tax of ₹3090.6 crore in April-June 2023, the highest ever single-quarter profit of any Indian carrier. Its revenues from operations, at ₹16,683.1 crore, were up more than 29% from ₹12,855 crore a year ago. This too, is a record for an Indian airline.

Indigo, of course, is no stranger to setting records, starting with its then unheard-of pre-launch order of 100 Airbus A320 aircraft back in 2005, which it topped with a 180 aircraft order in 2011 and a 300 aircraft order in 2019. It has now set yet another record by ordering 500 aircraft from Airbus, breaking Air India’s short-lived record order of 470 aircraft distributed between Boeing and Airbus.

With record revenues and profits, revenue passenger kilometres (RPK) up nearly a third from a year ago, more than 2.6 crore passengers carried in the first three months of FY24, and 500 more aircraft on the way, is this Indigo’s time in the sun? Will it be the exception to the rule that more airlines lose money than make it? After all, its current profit margin, at over 5.3%, is four times the global aviation industry’s margin of 1.2% forecast by IATA for calendar year 2023.

So it’s time to break out the champagne, right? Not quite yet. The unpredictable nature of the business is revealed by Indigo’s own numbers from the same period a year ago, when it logged a net loss of ₹1,064.3 crore. The yield per kilometre flown actually declined from ₹5.24 per km to ₹5.18.

So what helped Indigo turn around its metrics within 12 months? There were three main factors. One was the strong surge in travel demand after covid restrictions were lifted. This so-called “revenge travel” led to a surge in traffic. Domestic air passenger traffic rose to 38.6 million in the June quarter of FY24, almost a fifth higher year-on-year and 10% above pre-covid levels.

The second was a strong rise in ticket prices. Average ticket prices shot up more than 30% during the quarter, leading Civil Aviation Minister Jyotiraditya Scindia to call a meeting of airline officials and ask them to temper ticket prices – advice that they ignored.

The third was savings in fuel costs. Over the years, Indigo has been steadily shifting towards more fuel-efficient engines. It has managed to retire nearly its entire fleet of aircraft equipped with conventional engines, replacing them with fuel-efficient ones. It once had 180 aircraft with the less-efficient engine options but this number is now estimated to be under 20. In fact, the plan was to eliminate them all by 2022, but this was delayed because of supply issues with Pratt & Whitney. Future orders will be fitted with CFM LEAP engines.

None of these looks repeatable – at least on the same scale – in the near future. Passenger traffic growth is beginning to slow, with pan-India traffic down 5% in June compared to April. Efficiency savings are already complete with the engine switch. Fuel costs, which make up about 45% of total costs, were also relatively soft in the quarter with Brent crude down 22% from a year ago. But that honeymoon period ended with oil marketing companies hiking jet fuel prices in July and August after four months of reduction.

Ticket prices could also soon head north as the capacity gap left by the sudden bankruptcy of Go First Airlines is filled in by other players. In fact, in 2019, when Jet Airways went bankrupt, airlines enjoyed a similar season in the sun. Indigo cracked the ₹1,000 crore mark in quarterly net profit for the first time in the quarter after Jet’s demise.

And then there is the rise of other options. The railways has just ordered 500 Vande Bharat trains, offering speedy and comfortable connections between cities in 7-8 hours. This may affect airlines such as Indigo, which have been pushing into Tier 2 and Tier 3 routes as trunk routes become congested. India’s growing network of world-class highways is also making high-speed road travel a reality in many parts of the country.

So yes, traffic will continue to grow, and fleets will continue to expand. But profits will remain mercurial.