IndiGo bets on fresh measures to reduce costs3 min read . Updated: 08 Jun 2021, 07:03 PM IST
- IndiGo's net debt rose by 31.4% to ₹29,859.7 crore at the end of 31 March 2021 as compared to the year-ago period
India's largest domestic carrier InterGlobe Aviation Limited-operated IndiGo, which recently reported a fifth consecutive quarterly losses due to the ongoing pandemic, hopes to take several fresh measures to reduce costs.
These measures include bringing down fuel costs by inducting more fuel efficient aircraft, retiring older aircraft, and re-negotiating aircraft ownership costs with lessor.
The airline had since the beginning of the pandemic last year laid off about 15% of its staff, implemented salary cuts and leave without pay for staff, and renegotiated existing contracts with vendors.
As a result, the airline's total yearly expenses fell by 42.8% during FY 2021 as compared to the previous fiscal. However, IndiGo continued to incur a cash burn of ₹19 crore a day during the recently concluded March quarter, up from ₹15 crore a day during the previous quarter.
The airline's cash burn is expected to increase during the June quarter, Motilal Oswal Institutional Equities said in a recent report.
" Cash burn is expected to be higher in 1QFY22 as daily passenger demand falls to about 80,000 passengers from the highs of about 300,000 at the end of Feb’21," it added.
During the coming months, the airline will retire more A320ceo planes and replace them with more fuel efficient A320neo planes, apart from inducting A321neo planes.
The airline has replaced 25 A320ceo with more fuel efficient A320neo planes so far and plans to induct at least 20-25 A321 planes during FY 2022, a company spokesperson said.
"Fuel is obviously our biggest line item and just reducing fuel consumption is a big deal for us," IndiGo's chief financial officer Jiten Chopra told analysts in a post result call.
"So there are two replacements.... One is the classic going to the neo. And then from the A320 to A321. I think from the classic to neo the numbers are clear to everyone. It's 15% lower in costs and fuel. So it's a good deal," Chopra added.
The airline may however not look to further reduce the employee cost after implementing salary cuts and leave without pay. However, it will explore opportunities to renegotiate lease contracts for aircraft with lessors.
"Then we are looking at every other opportunity including of course aircraft ownership costs. (We are) talking to the lessors on seeing what sort of deals we can get," the airline's chief executive Rono Dutta said.
"And then all the other non-discretionary costs, everything that we have. We are cutting back on, but I would hold our breath in terms of having major, major operations to reduce our unit costs further. And what we need to do is get the airline going and get more on the revenue sidespeaking," Dutta added.
IndiGo's net debt rose by 31.4% to ₹29,859.7 crore at the end of 31 March 2021 as compared to the year-ago period. The airline's cash balance fell 8.9% to ₹18,568.5 crore during the same period.
During the same period, the airline's consolidated net losses widened to ₹1,147.16 crore, from ₹871 crore losses reported during the year ending on 31 March 2020.
"Fuel as you know is the biggest cost and our cost per flying is down 10%. So that's a big deal. And it will continue to get better as we take more and more yields," Dutta said, adding that A321 aircraft will help the airline reduce fuel costs and allow the airline to target not only new domestic destinations but also new international routes that increase its yields.
"So our performances are in the right direction. There is only one negative, that there are not enough customer load factors. Now the positives that I talked about are structural, and things will probably get better over time," Dutta added.
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