3 min read.Updated: 09 Jun 2021, 11:57 PM ISTRhik Kundu
India’s largest domestic airline IndiGo, which recently reported its fifth straight quarterly loss, primarily because of the covid pandemic, expects passenger traffic to revive domestically by the end of 2021 and internationally by mid-2022
NEW DELHI :
India’s largest domestic airline IndiGo, which recently reported its fifth straight quarterly loss, primarily because of the covid pandemic, expects passenger traffic to revive domestically by the end of 2021 and internationally by mid-2022. However, structural issues such as low yields and high taxes will have to be addressed, the airline’s chief executive Ronojoy Dutta said in an interview. Edited excerpts:
IndiGo’s net debt rose to ₹29,859.7 crore, while cash balance fell to ₹18,568.5 crore at the end of 31 March. How will you keep rising debt under control?
The key factor here is daily cash burn. We dropped cash burn quite nicely through December, and then in the March quarter, it actually increased again. This was due to a revenue shortfall. Revenue is dropping fast, and the question is when will this turn around again. We were quite optimistic till February when the revenue numbers reached 80% of pre-covid numbers. But, then again, it deteriorated rapidly in April-May. Revenue numbers are very much covid-related. Once the covid numbers go down, our revenues should return to normal. If we do 7 million vaccinations a day, the third wave should be flat.
IndiGo’s board has approved raising ₹3,000 crore through a qualified institutional placement (QIP). Is that for working capital requirements?
We are planning a QIP as a standby. We have a cash threshold in mind that we don’t want to fall below. Even in the most pessimistic of scenarios, we will not cross the cash threshold. The QIP is not for working capital but more for disaster management if such a scenario does occur.
How do you plan to keep rising costs in check?
The most important aspect of the cost reduction programme for us is our fleet. We plan to replace the A320ceo planes with more fuel-efficient A320neo. IndiGo had 95 A320ceo planes and has so far replaced 25 with A320neo. We plan to replace 40-45 A320ceos each year with A320neos, which are 15% more cost-efficient in terms of fuel. And then, we have 40 A321 planes, which have more seats and are 10% more cost-efficient (against A320ceos). We can target markets where we need an additional fleet with A321 planes.
The industry continues to face structural issues in terms of low yields. Can IndiGo remain profitable?
Before covid, we had a disappointing quarter where our numbers were not very good. The causes for that were two-fold and both on the cost side. A big part of the cost hike was pilot training. The second part of the cost hike was engine maintenance for A320ceos. We are returning A320ceos at a quick pace and, as we do that, the engine maintenance costs will come down. Pilot training is no longer an issue. On the revenue side, yields are low, which is really a problem. Yields in India are the lowest in the world, and they are not improving anytime soon. The Indian operating environment is very hostile for airlines.
How do you plan to address this issue?
There is hope on the horizon. As the economy picks up, middle-class income will grow quickly. Also, yields are so low that they can’t go lower. We expect it to slowly improve. At present, 1.3 billion people travel by rail. A lot of them are expected to shift to planes in the future, with covid accelerating this process. We are trying to be in every city with railway stations. The government will, however, at some point, have to do something about the high taxes.
On the global front, you said covid will lead to passengers opting for direct flights. How will you gain?
Our A321 fleet is good to take us to destinations 6-7 hours away from major Indian cities to international destinations like Shanghai, Moscow, Tel Aviv Jakarta. This is huge geography to cover. The hubs around us, who were carrying one-stop traffic, will feel the pinch as, frankly, there are not enough passengers to fill up wide-body planes. But, there are just enough passengers to fill up narrow-body planes, especially on non-stop routes.
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