Indian Private Airlines – A Silver Lining Among Gloom

By Ajay Prakash | July 21, 2020

The airline industry is one of the worst impacted, and is bearing the brunt of the COVID-19 pandemic. According to estimates published by to the International Air Transport Association (IATA), airlines worldwide, so far, have received $123 billion from their governments as bailout packages.

In India, it is well known that the national carrier Air India, has been receiving government support for a very long time. Recently, the airline has also initiated a massive cost-cutting and restructuring exercise.

It is noteworthy that Air India was the only Indian carrier permitted to operate repatriation flights during the past three months, which gave the airline some breathing space.

Indigo Airlines – India’s primary low-cost carrier | (c) IndiGo

Surprisingly, the Indian low-cost carriers Indigo, Spicejet, Vistara and GoAir have not made any attempts to seek government bailout funds.

So how are these airlines managing to remain afloat and flying?

The Lifeline Udan (Flights) Initiative

Indigo A320 aircraft modified for carrying cargo | (c) IndiGo

One of the lesser-known initiatives of the Government of India was the Lifeline Flights which were operated to bring emergency medical supplies into the country.

Until June this year, “Lifeline Udan has seen 588 flights so far and has carried over 940 tonnes of cargo.

The cargo essentially covered COVID-19 related reagents, enzymes, medical equipment, testing kits, PPE, medicines and other accessories and cargo requisitioned by both state and UT governments. Union Civil Aviation Minister Hardeep Singh Puri said:

Notably, these flights were operated by Air India as well as the private carriers. Spicejet and Indigo were benefactors of this operation. So, revenue did keep coming in for all the airlines during the lockdown period.

Passenger demand on the rise

Air passenger traffic dropped to almost zero in April 2020. By the end of May, flight restrictions were partially lifted. Close to 280,000 passengers travelled in the month of May. In June, a total of 1.98 Million passengers travelled domestically, which is 83.5 per cent lower than the figures of the corresponding period last year.

The IndiGo carried approximately 1.18 million passengers. Secondly, SpiceJet carried 0.38 million domestic passengers. Domestic passenger demand is slowly, but surely, picking up.

IndiGo enjoys an envious cash position. Towards the end of March, IndiGo’s total income was $2.7 billion. The airline has so far been able to weather it out on its own cash reserves.

As a precautionary measure, the airline announced last Monday that it would be cutting 10% of its workforce. The company is also not planning to declare any dividends this year. It is also noteworthy that the airline has kept its growth plans intact.

CEO Ronojoy Dutta recently said in a statement:

We are in active discussions with Airbus — we will take a large number (of A320neos)

Spicejet could contain its cost due to restructuring of its pay and allowance. The pay is aligned to operations, and employees are paid on a work-hours basis. The airline has also renegotiated its fixed costs.

The airline’s cargo operations increased during the past three months, which helped in cutting overall losses. The airline has not yet filed its fourth-quarter earnings report without which it is difficult to assess the actual financial health of the airline.

Vistara announced pay cuts for its staff ranging from 5-20%. The airline’s CEO Leslie Thng took 20% monthly pay cut between 1 July and 31 December due to the pandemic that has hit airline operations. Thng announced that the flights are not as strong as they were before the lockdown. The financial performance of the airline will continue to be negatively affected. The airline is backed by the TATA and Singapore International Airline (SIA) group which continues to invest in the airline. In April 2020, the combined infusion of funds in the airline was $67.5 million.

It is also interesting to observe that the TATA group is in negotiation with Air Asia (India) to buy out the airlines, thereby further consolidating Vistara’s position in the domestic market. In addition, TATA group is also one of the bidders for buying out Air India.

The worst is over. One can only look up from now onwards. When we look upwards, we want to see all of them flying again. What are your thoughts; Let us know in the comments!

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