MIAMI – IndiGo (6E) CEO Ronojoy Dutta is optimistic about the future of his airline. Writing in an article in the Economic Times, Dutta says that both economic growth and consumer confidence in the safety of airline travel had to increase in order for the IndiGo to thrive. He is pleased that both parameters have strengthened.
In May, IndiGo’s load was about 25% of capacity. Today, the airline is flying at about 58% and Dutta looks to grow that to 80% quickly. But, he says, much depends on travel caps being removed at both the national and state levels.
“Actually, there is no reason to keep the capacity going because if the demand was weak, I would say keep the capacity because then airline revenues would be stronger,” Dutta writes. “But at this point, there really is no reason to keep he caps. We are seeing yields move up. Our total loads are moving up. So removing the caps would be good for the economy, good for airline travel and it will not hurt our revenue. We are very sure about that.”
There is no doubt that business travel is going to take a hit, he continues. Digital meetings are a big reason for that. However, leisure travel, meaning non-business class travelers such as small business people and migrant laborers, along with families getting together, will grow. “As long as the economy remains strong and traveler confidence in travel remains high, that is where the growth will be.”
However, international travel is a different story. That segment is currently only at 20% of pre-pandemic levels. Government help is needed. Places like Sri Lanka, Nepal, Bangladesh, Singapore, and Thailand need their respective governments to make a serious effort to add more flight frequency.
Other areas, such as lower fuel costs and reducing the number of inefficient aircraft in its fleet are also helping IndiGo to rebound.
Retooling the Business
“One of the reasons why IndiGo is doing well is when we shut down, we said let us retool our business. Let us look at every opportunity we have to come out of this stronger, and we started with the product. We wanted to provide a much higher level of customer service than we have ever done before. And it is showing in the numbers. Our year over year yields have actually gone up 8%.”
Commenting on what the effects will be if the government does not allow airlines to increase domestic capacity caps, Dutta says, “Since there is underlying demand, revenue will go up. Our forecasts in that scenario show that we will be at 80% capacity by year-end domestically and at 100% of capacity by April or May.
“One works on cash burn either by getting more debt or raising equity,” Dutto continued. “That is not the plan we are following. We want to keep a strong balance sheet by growing revenues quickly, and I am optimistic that is exactly what is going to happen.”
For 6E, the sweet spot where cash burn goes to zero is when total capacity, including international travel, is at least 85-90%. Dutto believes that domestic capacity can reach that level in early 2021, but that international capacity, again, depends on government action.
So, the bottom line is that IndiGo is growing stronger. The crisis situation is beginning to slowly disappear. “And that is not just true for aviation. It is true for a lot of other industries, also. A lot depends on us, frankly. Good things do not just happen on their own. Good things happen because they are made to happen.”
Featured image: Gyrostat.