India’s largest passenger airline, IndiGo, is now bullish on a rapid recovery with growing demand for air travel. However, rising oil prices could potentially dent the Low Cost Carrier’s (LCC) return to profitability.
IndiGo's CEO Ronojoy Dutta said that while revenues were fast returning to normalcy, the rise in fuel prices was worrisome while speaking at the Q2FY22 results conference call. “We need a rapid return to profitability in order to strengthen our balance sheet and we are excited about the growth opportunities that lie ahead of us,” Dutta said. However, rising oil prices will remain a major concern for the airline, averaging $ 85 per barrel compared to pre-COVID oil prices, averaging $ 65 a barrel.
In Growth Mode
The airline has managed to stem its losses, which have reduced to INR 1,440 crore in Q2 compared to a net loss of INR 3,170 crore for Q1 of FY22. The growing pace of revenue recovery and a stronger economic environment, coupled with the airline's modern fleet of fuel-efficient aircraft, makes it best placed to benefit from the impending recovery of the commercial aviation market. Its average revenue booked per day in October is now equal to the pre-COVID level in January 2020, signalling a recovery in air travel.
“The reduction in COVID-19 cases in the country, increased pace of vaccination, and relaxation of the testing norms by the various state governments had helped to stimulate demand during September 2021 quarter,” Dutta said, adding that on the whole, IndiGo was able to deploy around 41% additional capacity in the September quarter as compared to the same period in June. According to IndiGo's CFO, Jiten Chopra, the airline attained 61% of its pre-COVID capacity in the September quarter compared to 44% in the June quarter. Passenger load factors in the September quarter increased by 71.1% compared to 58.7% in the June 2021 quarter.
The government recently removed domestic capacity caps altogether. The restrictions, which stood at 65% at the end of June, had been raised to 85% by mid-September before being removed altogether. A peak of 1,209 daily flights and a minimum of 759 flights were operated during the quarter, including non-scheduled flights.
The airline anticipates that its October passenger load factors will increase to around 76%. IndiGo carried 11.2 lakh passengers in Q2, 79% more than 63 lakh passengers in Q1. The growth in passenger traffic was also aided by an increase in the frequency of flights to international destinations due to ‘travel bubble’ arrangements. IndiGo’s international capacity is now nearing 30% of its pre-COVID level.
“Now that it looks like we are finally emerging out of the COVID crisis, we are turning our attention back to the two key principles of our business model, namely: continue to keep our costs down and grow rapidly,” Dutta said.
New Thrust
IndiGo’s cargo operations under the brand ‘CarGo’ grew by 16% in the September quarter over the June quarter. “We anticipate a potential structural shift from traditional widebodies to narrow body cargo aircraft and with our upcoming freighters we will be able to take full advantage of this opportunity,” Dutta stated.
IndiGo was the largest Indian domestic cargo carrier before the pandemic. The delivery of IndiGo’s first A321P2F (Passenger-to-Freighter conversion) is expected during H1FY22, which will be used on domestic and regional routes. The remaining three aircraft on order will be delivered by 2023. The A321P2F can support a payload of about 27 tonne and converted through a programme involving ST Engineering and Airbus with their joint venture, Elbe FlugzeugWerke (EFW).
IndiGo now has a 279 aircraft fleet (as of 30th September), including 72 A320 CEOs, 130 A320 NEOs, 44 A321 NEOs and 33 ATRs - a net increase of two aircraft during the quarter. The airline continued to reduce its fleet of older, less fuel-efficient A320CEOs and returned 13 of these aircraft in the September quarter, adding 11 A320NEOs in the same period.
IndiGo is India’s largest passenger airline, with a market share of 57% as of August.