IndiGo's rising costs are indication for growth; expect a smooth landing by 2022: CEO Rono Dutta
IndiGo airline's CEO Rono Dutta clears the air on the issue and talks about IndiGo's south-east Asia strategy. Owing to seasonal disruptions, the profitability faltered however they had to start the China and Vietnam flights by October 31 though r...
At around INR 400 crore, engine maintenance cost came out as the become the elephant in the room out of nowhere in the last quarter. Can you take us beyond what you said in the analyst call - whether this INR 400 crore will be in every quarter over the next few years or annually.
We had two spikes in costs - engines and pilot training. To finish the pilot training, we jumped to 50 pilots a month, which requires a lot of examiners to be there. By June we will be done with that. So, through June, employee costs spiked and only because of pilot training. By (next) June, it will go down.
The engine issue goes back to 2016, when Airbus A320 neos were not coming and we were facing a capacity shortage. So, a decision was made to extend the leases of the old classic Airbus A320s. Typically, we get rid of the planes in six years — one engine shop visit — and once they go for 8-10 years, a second shop visit is needed. So, these second visits will continue throughout 2020. In the second half of 2021, they will start declining, and in the beginning of 2022, go back to zero.
This INR 400 crore will be every quarter?
Yes, it will be around USD 80 million every quarter for the next two years.
Your middle east flights are doing well but south-east Asia isn’t. Kuala Lumpur is into a huge loss, Singapore is doing badly. Vistara and AirAsia India will be coming into these markets and have a local parent-airline advantage in south-east Asia. How will this hub strategy of taking passengers from Delhi to Kolkata and then to China, Vietnam, or Kuala Lumpur work?
South-east Asia is our natural market and we have to make it work. So, why are we doing badly? Remember there is the thing about seasons. The season ends on October 31. We had to start the China and Vietnam flights by October 31, but we needed regulatory approvals there, we needed slots. We were ready on October 2, so by October 21, you better fly. The booking curve is 90 days, but we started this flight in 20 days because if we didn’t, we would have lost the rights. The compressed booking curve aside, international routes take four to six months to build.
But Kuala Lumpur has been operating for a year.
We started Kuala Lumpur from Bengaluru, Chennai, and Delhi. We started Chennai four months ago. Delhi, too, we barely started. You can find out what’s not working, or what needs fixing, or we can fold and run. We won’t fold and run, we will make it work. There is a huge Kuala Lumpur-to-middle east traffic. Right now, Kuala Lumpur is on its own. What will happen when we start connecting?
There has been a lot of concern among promoters about international strategy, including having hubs. In India, IndiGo had the lowest cost base, and it is the home turf. Outside, there are big players like Singapore Airlines, Cathay Pacific, and Emirates. They could bleed you a lot. How will international look like in the next three years or so?
International is as profitable as domestic is right now. The margins are the same. Within domestic there is an S curve of very profitable flights and very unprofitable flights; and same in international. You have to decide whether to fold or make it work. You need to fix problems to make it work, which does take time.
Rono Dutta spoke to us in great detail about many other issues at IndiGo. ET Prime members can read the entire interview on ET Prime.