Country’s largest airline IndiGo has made a smart recovery from a COVID-19 pandemic that has probably hit the aviation sector the most. The airline narrowed its net losses in the third quarter to Rs 620 crore, from Rs 1,194 crore in the previous three months.
But the recovery has been slowed down by a ‘volatile revenue market’ that has swayed up and down depending on the news flow on the pandemic and vaccine rollout, Chief Executive Officer Ronojoy Dutta told analysts on January 28, after the airline announced financial results for the December quarter.
And though the industry veteran has underlined that capacity utilisation may reach 100 percent as soon as the government allows it – the present cap is 80 percent – the volatility has held him back from giving a guideline on revenue. “It is a volatile revenue market. We are unable to give revenue outlook for the near term due to the volatility,” Dutta said.
“We had a period of six weeks that were strong. And then we had four weeks that were weak from December 15. The last 10 days in January have again picked up,” Dutta said, indicating that news of a new COVID-19 variant in the UK had impacted bookings.
While the airline’s load factor (a metric used for measuring the percentage of available seating capacity) for the quarter fell 15.6 percentage points to 72 percent against 87.6 percent YoY, it was an improvement from the 65.1 percent in the second quarter.
Capacity utilisation by the end of December increased to 70 percent in the domestic market, and at present hovers around 80 percent of last year’s, the airline said. In the international market though, capacity was still at a low of 28 percent, compared to a year-ago period.
While the airline wants to reach 100 percent of its capacity at the earliest in the domestic market, internationally, it expects to reach half of its capacity by the middle of the 2021 calendar year, and 100 percent by the end of the year.
The airline had added a net of five aircraft to its fleet in the quarter, taking the total to 287 planes. It reduced the count of owned planes and A320ceos, in favour of the new generation A320neo that have more capacity, and burn less fuel. The net aircraft count may reduce further as the airline retires more of the older planes. But the seat capacity may increase because of the bigger A320neo aircraft.
IndiGo also added an ATR aircraft, aimed at smaller routes. It had recently launched seven new stations.
IndiGo’s daily cash burn, which stood at Rs 30 crore in the June quarter and reduced to Rs 25 crore in the September quarter, was down to Rs 15 crore in the period ending December 31. But because of the volatility, added Dutta, the airline is unable to commit on a further improvement on the cash burn in the January-March period.
Banking on tier-2 and tier-3 cities
Dutta said the airline hopes to start the new financial year, which in April also coincides with the peak summer season for travel, with full capacity.
But is it not in the traditional metro-to-metro routes that he is focusing on, but the metro to tier-2 and 3 cities. As Sanjay Kumar, IndiGo’s Chief Strategy and Revenue Officer pointed out, corporate travel – which used to make up for a large chunk of the metro routes – has been slow to recover.
“We are beginning to get a positive response from our corporate clients, especially in the SMEs sector. Travel by executives in some sectors such as pharmaceuticals, auto and infrastructure, has gone up to 25-30 percent of pre-COVID-19 levels. By the first quarter of the next financial year, we hope this will overall improve to 70-80 percent,” Kumar said during the analyst call.
Instead, it’s the traffic in the smaller cities that IndiGo is more bullish on. Dutta said markets such as Bihar, Chhattisgarh and eastern Uttar Pradesh have developed. “Many of the tier-2 and tier-3 cities are now seeing numbers higher than pre-COVID-19 levels,” the CEO said.
Read more on this trend: Indian aviation veers towards non-metros in December, 13 cities see traffic better than pre-COVID levels
Dutta added that even if the fares, which on an average hover around Rs 3,000 at present, increase to Rs 4,000, these are competitive compared to train tickets, especially for longer routes. “Transition from train to air is happening,” he said, adding that this will continue even if the fares increase.
Crucial in the coming months, the CEO added, will be the ability to increase capacity as this will reduce costs.
