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IndiGo, the country’s largest airline, is expecting Omicron-induced slowdown in the January–March quarter with “decline in revenues”.
The company, however, expects “recovery to take place” in Q1 FY23 (April–June) and thereafter.
Capacity for Q4FY22 is expected to be 10–15 per cent lower than Q3. Load factors are also expected to be weaker, sequentially. As the environment remains “volatile”, IndiGo is reviewing bookings and capacity deployed on a daily basis.
Revenue fall and rise
According to Ronojoy Dutta, CEO, IndiGo Airlines, bookings from Dec 15–Jan 15 went down everyday and bottomed before seeing a “small wave-up”. Corporate travel, which had increased to 70 per cent of pre-Covid levels in December, dipped sharply to 25 per cent (of pre-Covid levels) in the first two weeks of January.
“I think we can describe the revenues in two ways. One is a big wave down. Up to December 15, we were holding strong. Then from December 15 onwards, or for the last fifteen days of the (December) quarter and till January 15, we saw a big wave drop. From January 15 to February 5-6 ,we see a small wave up. May be the worst has come and gone. And may be things are slowly improving. It is not rebounding,” he said during the post earnings conference call.
“At least we can say for sure, it is not getting worse,” Dutta added on sentiments.
Tailwinds
Tailwinds for the airline include international travel, apart from improved demand for travel from smaller towns of India. Another pocket of strength is pent-up demand for travel. Dutta said that although international capacity is still restricted, traffic showed particular strength.
In Q3FY22, international capacity deployed grew by almost 80 per cent q-o-q and bookings grew 95 per cent. Margins are better in international operations. Bubble flights have also been allowed in most of the Middle East — Dubai, all of UAE, Doha, Kuwait, and Saudi Arabia.
“So, we are constantly in touch with the government looking for more international activation and revenues. I have to say that we see a couple of trends which are very encouraging for the future. As you know, domestically, we have been growing, particularly in smaller cities. So as we keep going to smaller cities, that should have more scale,” he said.
He added that although the international segment is performing better than it did before Covid, as capacity opens up, IndiGo does not expect to get such high yields for the segment (since capacity and yield will work in opposite directions).
Yield, which is rupee earned for each passenger kilometer flown and is measure of fares and pricing power, improved for IndiGo to 4.41.
Managing costs
High ATF costs continue to be a concern for the sector with IndiGo witnessing an 186 per cent rise in fuel costs y-o-y for the December quarter.
One cost management method includes shorter routes.
“Most of the consumption happens in descent and trying to manage all those procedures helps a lot. So the flight operations people are very actively using fuel burners,” said Dutta.
The other point, he maintains, is good purchasing power because of which IndiGo pays a “slightly lower rate than rest of the industry”.
Fleet modernisation will see IndiGo replace older CEOs (current engine option) planes with NEOs (new engine option) by December 2022. During Q3 FY22 it inducted 18 fuel-efficient NEOs and replaced 16 CEOs.
“All of the training bubble (in previous years) really pushed up costs. So the way we look at it, internally, is that 2019 is probably a good year, and 2020 and 2021 more so (because of) anomalies of the training bubble. And our goal is to try and get back to 2019 levels with all pay restorations,” he said on the cost management front.
Liquidity improving
On the proposed fund raising through QIP, the management has indicated that the liquidity position is improving and they are monitoring the situation. Analysts think it unlikely that the IndiGo will opt for fund raising, especially when it reported free cash of ₹7,810 crore in Q3 FY22, an increase of about ₹1,500 crore sequentially.
“Cash flow is improving. And the liquidity position is improving,” said Dutta.
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