IndiGo to phase out 120 A320 ceos in 2 years; working with partners for better prices

IndiGo will phase out 120 A320 ceo planes, which have high maintenance costs, in the next two years as well as experiment with new network and revenue models as the country's largest domestic carrier tackles headwinds due to the coronavirus pandemic.
Keeping a close tab on various costs, the airline is also in discussions with partners for working out better prices and terms, senior officials said on Tuesday soon after it reported a net loss of Rs 871 crore in the three months ended March.

"We will be 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 CEO Ronojoy Dutta said in an earnings call.

Amid the challenging environment, Dutta emphasised that in these times, the focus must shift from profitability and growth to managing cash and liquidity.

"To preserve cash, we are not looking to pay any dividend this year. We will continue to take steps to shore up our liquidity... We are in the process of revising full year capacity guidance," he said.

Dutta said that 120 A320 ceos would be going out of the airline's fleet in the next two years and new neo aircraft would be taken.

According to him, the maintenance costs for classic ceos are high and the airline is going to return them as rapidly as possible.

At the end of March, IndiGo had 262 aircraft including 123 A320 ceos, 100 A320 neos, 14 A321 neos and 25 ATRs. It operated a peak of 1,674 daily flights, including international ones, during the March quarter.

"We are keeping a sharp eye on maintenance costs of ceos," he said, adding that the airline was in negotiations with suppliers for a fairly substantial cost reduction.

IndiGo CFO Aditya Pande said the company has taken various steps to reduce costs and improve liquidity.

"We are also looking to raise finance against unencumbered assets of IndiGo which could be additional source of liquidity," Pande said.

There have been 5-25 per cent salary cut across the organisation, except for certain employees with lower pay grade and all merit-based salary increments have been deferred, among other measures, he added.

"We are looking at every element of cost and working with partners to work out better prices and terms... we have reached out to suppliers for favourable credit terms," he said and stressed that lease rentals were not being deferred.

According to him, these measures would result in additional liquidity of Rs 3,000 to 4,000 crore over nine months.

"Around 40 per cent of the costs are fixed... within that we expect on a full year basis we will be able to save 25 per cent on our total employees costs. That is the goal we are working on," he noted.

While noting that there is a lot of pent up demand, Dutta said, there is also a lot of dampening effect on revenue due to customer fear, weak economy and restrictions in various states. Corporate demand is also low.

"We are very anxious to start international flights," he said.

To a query on possible consolidation in the domestic airline industry, Dutta said IndiGo has no plans for buying or selling.

"We don't want to buy any airline or sell our airline to anyone. What happens around us. I don't know, I don't want to speculate on that at all. We are clearly on go alone strategy," he said.

About the airline, Dutta said it has a healthy balance sheet, energised workforce, efficient fleet, very strong cost position, strong market position in India and in neighbouring countries.

Domestic flights resumed operations after two months on May 25, while international services still remain suspended amid the lockdown to curb spreading of coronavirus infections.