From dipping into reserves and using cargo flights as a source of revenue, Indian airlines have struggled to stay afloat as COVID-19 fears continue to haunt travellers across the country.
As COVID-19 cases started to mount and travel restrictions were imposed in March, the number of unique passenger trips fell by 33%. On March 25, the government imposed a ban on domestic flights, which was lifted two months later.
Flights resumed on May 25, but demand remained tepid — 21 lakh passengers travelled by air in July — just 18% of the figure for July 2019.
Scrapping the barrel
With thinning revenue streams and depleting cash reserves, IndiGo dug into its reserves and withdrew up to ₹2,000 crore after registering a loss of ₹2,800 crore between April and June 2020. Tata Sons is also said to have extended equity of ₹575 crore in two tranches to Vistara recently, The Economic Times reported on August 3.
“Except IndiGo, most of the airlines have no cash and are totally dependent on their promoters. The financial impact is very severe and demand risks will continue. Airlines have to recapitalise and fund next two years of operations and without massive recapitalisation, I don’t see some airlines surviving,” Kapil Kaul, India-CEO at Centre for Asia Pacific Aviation (CAPA) told The Hindu in an email.
In its forecast, CAPA has said all airlines, barring IndiGo, may need ₹18,750 crore until the market begins to turnaround, and more during the recovery phase.
“Promoters, bankers, private equity, & government are all unwilling to provide support given demand risk & uncertainty. CAPA India reiterates that this could have an unprecedented impact on air connectivity, and on economic recovery. The two critical elements for the industry to survive and navigate this crisis are demand [traffic risk] and capital,” CAPA India tweeted last week.
“We shifted our focus from profitability and growth to managing cash and liquidity amidst the crisis situation — reducing our unit costs even further, making our fleet more efficient, ensuring our capacity is right sized to the market, and experimenting with new network and revenue models,” IndiGo’s CEO Ronojoy Dutta told The Hindu in an e-mail.
Fuel efficiency
To save on the most crucial expense — fuel costs — the airline has prioritised flying its fuel-efficient NEOs over older CEO-powered A320 planes. Negotiating better prices and favourable credit terms as well as selling and leasing back its older CEO planes are the different ways in which the airline aims to generate liquidity of ₹3,000 to ₹4,000 crore.
Since the interview, IndiGo’s board has approved raising ₹4,000 crore through issue of equity shares.
“We have been renegotiating various contracts with partners, vendors and lessors. We also had to make the difficult decision of temporarily reducing some of our staff cost,” a Vistara spokesperson told this newspaper.
Goods to the rescue
A slump in passenger demand has forced airlines to tweak business strategies to keep as many planes as flying as possible and open new revenue streams. Before COVID-19, SpiceJet was the only airline that had three to four planes exclusively for cargo; other private carriers used the belly of their passenger flights for moving shipments.
This has begun to change.
“CarGo line of business has performed extremely well until the lockdown, which was leveraged to carry essential supplies,” Mr. Dutta said on the airline’s goods transport unit. “We have learned valuable lessons about the demand and scope for CarGo during this lockdown, which will serve us well for augmenting our operations in the months ahead. With currently 10 aircraft completely devoted to CarGo, we plan to continue with CarGo operations even once we fully resume our operations,” he said.
Airlines like Vistara and SpiceJet have also expedited plans to launch long-haul international routes to destinations like London after noticing a steady stream of passengers through repatriation flights. They are spurred on by bilateral agreements India has signed with select number of countries which allows only airlines of the bilateral partners to ferry passengers, thereby bringing down competition such as from Gulf carriers which would connect passengers to destinations in Europe and U.S. through their hubs in Doha and Dubai.
With Jet Airways shutting down, and only Air India seving medium and long haul international destinations, this is an opportunity many would like to cash in on.