We Have Learned Valuable Lessons About Demand And Cargo: Ronojoy Dutta, CEO, IndiGo
What is the overall travel demand scenario following the resumption of flights?
The overall demand has been positive. We witnessed healthy traffic on the very first day of resumption of flights, supporting more than 20,000 passengers to be home by nightfall, and 85 per cent of our flights reached their final destination within 30 minutes of scheduled arrival time. Our mock drills prior to resuming flights ensured smooth operations with all the new guidelines and safety measures for Covid-19. In fact, it was heartening to support people from all walks of life in reaching their homes safely, including a group of 10 farmers on May 28 from Delhi to Patna. We also ensured that any flight that is on sale during this period is compliant to the latest Covid-19 guidelines issued by the state governments as well. Currently, IndiGo is operating close to 350 commercial flights daily, in addition to 10 aircraft for CarGo operations. In view of the 30 per cent cap on operations till August, the routes that are non-operational are so due to state-wise restrictions on air travel.
Tell us about your cargo operations during the lockdown. Do we see a more focused air cargo division going forward?
Our cargo line of business has performed extremely well both until and especially during the lockdown. During the lockdown, we utilised our cargo capacity to carry essential supplies both across domestic and international destinations. We have learned valuable lessons about the demand and scope for cargo during this lockdown and these lessons will serve us well for augmenting our cargo operations in the months ahead.
How have passengers responded to the resumed flight operations in terms of booking/advance booking, average load factor since May 25?
We have been actually surprised with the booking trends, as there has been a sustained demand even after the first few days of flying. We are quite encouraged after seeing the result in the first three weeks of travel resumption. We were aware that there was pent-up demand that would play out in the first couple of days. We have analysed the traffic every five days and all the trends are up. Even though aircraft occupancy is not the same as pre-lockdown levels, it is encouraging that the demand is sustaining even 20 days (mid-June) after the resumption of flights, the travel trend keeps going up in terms of unit revenue and future bookings. Where we stand now, we think 30 per cent of capacity is too low. We feel very bullish about going to 50 per cent.
How do you see the role of flight attendants/cabin crew considering the restrictions and stringent guidelines for passengers? Do we foresee a reduction in the number of on-board flight attendants per flight?
The role of cabin crew has always been critical as they are responsible for both service and passenger safety on-board. The current scenario has added another dimension to the safety aspect, where they ensure that the passengers are following the guidelines enabling their own and the safety of everyone else around them. We expect the demand to further pick up and don’t see the need for any reduction in the number of crew members in the foreseeable future. In fact, the legal minimum of cabin crew on board an A-320 is four — which corresponds to the number of exits that are manned at takeoff and landing.
Are there any extra safety measures that IndiGo has taken for passengers and crew? Are there any new trends emerging?
We are strictly adhering to the guidelines as advised by the DGCA and going ahead as per the SOPs for resumption of operations after the lockdown. From ensuring social distancing and providing PPE kits to passengers on board to not serving meals, we are taking care of every aspect in order to bring back customer confidence in flying as the safest mode of travelling. As a protocol, IndiGo will continuously monitor safety and employee risk assessment to make changes as and when required. We do foresee a demand for a customised flying experience in the coming future with people prioritising safety and social distancing when it comes to air travel too. Charter flights are certainly an emerging trend where small groups of people will travel to ensure there is minimum possible crowd around them. So far we have seen demand for charter services from organisations for their employees and individuals for safe travel with their families. We are also seeing a sustained demand for international charters for repatriation of Indians stranded abroad, However, we assume that once international commercial flights are re-launched, this segment would see a decline.
How long will it take for operations to reach breakeven or a profitable level, given that the operations will remain capped till August?
The revival will depend on travel demand, and will be contingent upon the customer trust in safety of flying that we as airlines have to gain over time. We are taking all measures to ensure safety of passengers from infection through air, surfaces and asymptomatic passengers in the aircraft by circulating clean air through HEPA filters every 2-3 minutes, rigorous sanitisation of the aircraft and all surfaces after every flight and ensuring the use of masks, gloves and face shields by all passengers and an additional protective gown for passengers on middle seats. It is heartening that there has been no evidence of transmission on-board so far. Capping of airfares has certainly helped in reviving demand through affordable fares, while keeping it viable for airlines to operate. However, once demand picks up the government should review the capped fares for airlines to be able to reduce cash-burn and retain jobs. We are hopeful that we will be at 85 per cent of our operational strength by April 2021, which will help us cover our costs and break even. We expect IndiGo to slowly and steadily rise even stronger. International operations were more profitable for the airline.
“We are also looking to raise finance against the various unencumbered assets of IndiGo which could be a source of additional liquidity for us”
When do you see international travel demand picking up?
Yes, international operations were more profitable for the airlines but we have also seen resumption of domestic operations as a great success. We are already operating several charter services each day, either as part of the Vande Bharat programme, or for individual entities and corporations. However, we are expecting the government to resume international operations soon in a phased manner by following all the precautionary measures and guidelines. We are hopeful that the government will open international skies from July, but we are yet to get a final decision. We believe that we will see growth in demand for international travel, backed by passenger confidence with the safety measures and guidelines in place. International traffic will be key to the revival of the aviation sector, and contribute to overall economic recovery.
Is there any estimate of the debt in the aviation sector? By when can a total recovery be expected for domestic carriers?
According to IATA, the top-30 balance debt levels were high. Airlines are expected to lose $84.3 billion in 2020 for a net profit margin of -20.1 per cent. Revenues will fall by 50 per cent to $419 billion from $838 billion in 2019. In 2021, losses are expected to be cut to $15.8 billion as revenues rise to $598 billion. We believe that it may take 18-24 months to recover from the current situation and come back to the pre-Covid levels, also depending upon how other countries resume their international operations and how receptive they are towards international travelers.
What is IndiGo’s strategy to ride this storm? Your views on need for pilots, cabin crew, flight attendants and the jobs that the aviation sector was offering in the preCovid period — how much time would it take for the domestic aviation sector to again be on the growth trajectory? What can the government do to help?
Amidst the crisis situation, we strive to manage not profitability or growth but liquidity. Our focus is on managing our cash balance by reducing costs, maintaining liquidity, exploring alternate sources of revenue and building consumer and employee confidence through a safe and hassle-free flying experience. We have taken undertaken measures like negotiating better prices and terms with our partners, staggered pay cuts, placed our discretionary expenses on hold and deferred certain capital expenditure projects to reduce costs.
Additionally, we are replacing our old A-320CEOs with new A-320NEOs to enhance cost-efficiency, freezing supplementary rentals; we are in talks with suppliers to provide more favourable credit terms and we are not paying out dividends this year to ensure liquidity. We are also looking to raise finance against the various unencumbered assets of IndiGo. We expect these measures to help us generate an additional Rs 30-40 billion. We are working to right-size our airline to the expected level of flying. We are glad that we have a healthy balance sheet and we should be able to handle this storm reasonably well.In fact, given the sustained travel demand, there is scope for more capacity. We request the government to let us go to 50 per cent capacity. We feel while unprecedented times call for such measures, the government must look at adopting a short-term correction approach for now, just as the airlines are doing.
This article was first published in the print issue of (25 June- 09 July) BW Businessworld. Click Here to Subscribe to BW Businessworld magazine.
