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Not everything is dark in IndiGo’s earnings: Airline adds more aircraft, looks to extend cost advantage

The airline may have posted a loss of Rs 5,806.4 crore in FY21, but took delivery of a staggering 46 new aircraft in the 52 weeks between April 2020 and March 2021. At the end of March 2021, IndiGo had 285 aircraft in its fleet.

IndiGo, India’s largest carrier by fleet and domestic market share, announced a huge loss of Rs 5,806.4 crore for the financial year 2020-21. While the year has been an aberration and could be best forgotten, there is one area in which the company has had a laser-sharp focus—fleet renewal.

Last year, by end of March the country had already slid into a lockdown and the airline closed the quarter and financial year with a fleet of 262 aircraft, which comprised a mix of 100 A320neos, 123 A320ceos, 14 A321neos and 25 ATRs. Twenty-nine of these were owned or on a finance lease, the remaining on an operating lease.

What has changed now?

A year later, at the end of March 2021, the airline clocked a fleet count of 285 aircraft. The mix consisted of 120 A320neos, 100 A320ceos, some of which are already on their way out, 39 A321neos and 26 ATR, one of which isn’t operational and hasn’t landed in India.

The airline crossed the fleet count of the entire AirAsia group in this process. While the world over, airlines are struggling and sending aircraft for long-term storage or retiring planes without replacement, IndiGo has seen a net addition of 23 aircraft. The airline has taken delivery of a staggering 46 new aircraft in the 52 weeks between April 2020 and March 2021. Interestingly, India and most of the world was closed for 8-10 weeks during the period.

The year has seen the retirement of 23 older A320ceo aircraft, some of which were over a decade old and thus inefficient in terms of maintenance and fuel when compared to the A320neo. A handful of A320ceos are in MROs across the region as they prepare for redelivery and the number of A320ceos in IndiGo’s fleet will go down further in the months to come.

The mix and its importance

While 23 A320ceo left the fleet, only 20 A320neo were added. The major chunk of induction was on the A321neo side with the fleet count almost tripling—from 14 to 39. While the initial batch saw the aircraft with 222 seats, the later ones were inducted with 232 seats.

Higher seats help the airline beat down the CASK or cost per available seat kilometre. CASK is the unit cost of flying a seat per unit kilometre. With its induction of ATR aircraft, the airline had started seeing its CASK go up marginally. The ATR fleet does not make a significant chunk of the total fleet and thus hadn’t had an adverse impact on the CASK at the company level. But with the 232-seat A321neo, the unit cost goes down further, which makes the airline even more competitive than what it was in the past. This also gives it higher room to experiment as the potential to lose money is marginally lower.

Tail note

Rivals in India have been struggling to make ends meet with few carriers also admitting a delay in payment to lessors. In such times when IndiGo is continuing to take deliveries that are in sale and leaseback mode, it sure is scoring some brownie points with both lessors and the manufacturer. While it may or may not have an immediate term financial impact but it certainly has a long-term positive impact on goodwill.

While its size could have made it slow to change direction, IndiGo has been swift in taking decisions on the fleet side with the aim to be strong in the longer term and trying to cushion the impact with its cash reserves in the medium term.

But cash reserves aren’t infinite and the end to the pandemic is not in sight, just yet. With the Pratt & Whitney engine issues behind it and the next lot of A320neo family aircraft being powered by CFM, an all-neo family will only help save costs for the airline going forward.

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Written by motiva8

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