Budget carrier Go First has been given the go-ahead for an IPO by SEBI – India’s market regulator. Following months of speculation, the carrier had filed its preliminary papers for an IPO in May. The announcement on August 30th makes Go First the fourth airline in India to be publicly listed after IndiGo, SpiceJet and Jet Airways. Let’s find out what’s in store for the airline and how it plans to benefit from this business strategy.
Clearing outstanding dues
The airline has amassed substantial debt over the last couple of years, and the pandemic has only made the situation trickier. A major chunk of the ₹3,600 crore ($491 million) it plans to raise through selling its shares will go for clearing outstanding dues.
Payment to the Indian Oil Corporation alone amounts to ₹254.93 crore (almost $35 million) for fuel supplied to the carrier. The airline will pay another ₹279.26 crore (around $38 million) to aircraft lessors and for securing deals for future aircraft maintenance.
Go First is also looking to raise money over and above the IPO proceeds. The Press Trust of India reports that if everything goes according to plan, the carrier could raise another ₹1,500 crore (around $200 million) through a pre-IPO placement. If one has been following Go First’s rebranding strategies over the last few months, such changes in its business plans will not come as a surprise.
Change in direction
Indian aviation space is highly competitive, with price-sensitive customers and extremely thin margins. As one of the three major low-cost carriers, Go First has been struggling with losses for a while. It was last profitable in 2019 when it netted ₹123 crore ($16.7 million). The Wadia-group-owned airline is also behind its counterparts in terms of market share, with 9.6% as of April 2021. IndiGo, in comparison, commands an impressive 54% hold on the market. However, IndiGo also has a much bigger fleet, which accounts for such a lead.
To gain a competitive advantage, the carrier, earlier known as GoAir, rebranded itself as Go First to shift in the direction of an ultra-low-cost carrier (ULCC). To do this, it brought on board Ben Baldanza, the former CEO of Spirit Airlines. The strategy puts Go First in a unique position to be the first to define rules of ultra-low-cost flying in the Indian market. Unbundled fares allowing passengers to customize their ticket price could certainly work in the country.
Indian carriers have also realized the huge potential in connecting tier-2 and -3 cities. Both IndiGo and SpiceJet aggressively deploy smaller turboprops on regional routes, and this is something Go First could potentially want a share of. Indeed, its decision to fly an all fuel-efficient A320neo fleet by 2024 is certainly a step towards better fleet optimization as it looks for more profitable routes in the future.
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The string of decisions from Go First could be seen as necessary interventions to keep afloat in troubled times. India enjoys a unique position in that its size is big enough to support a robust domestic market. Yet, most domestic flights in the country are two hours or less. Price-conscious travelers might just get onboard with the concept of an ultra-low-frill airline that gets them from point A to B on time and safely. Time will tell if Go First could tap into this successfully.
What do you make of the recent changes in Go First’s brand? Are you optimistic that such a huge cash infusion could turn the tide for the carrier? Do share your comments below.