At today’s earnings call, IndiGo’s CEO Ronojoy Dutta was clear on the long term goals for the airline. Despite losses of more than $100m in the quarter, Dutta is focused on a move to a younger, more efficient fleet, with plans to phase out 120 A320ceo aircraft within two years.
The opportunity within the crisis
The losses reported today by IndiGo owner Interglobe Aviation were as to be expected. India’s largest airline posted a net loss of 8.73bn rupees ($116.19m) for the fourth quarter, which ended at the end of March. The result for the next quarter is likely to be even worse, as the airline was grounded until just over a week ago.
Nevertheless, IndiGo is looking for opportunities within the crisis. Speaking on today’s investors call, Ronojoy Dutta, CEO of IndiGo, stated that,
“We see an opportunity here to make the fleet more efficient. Particularly with the old classic [A320] ceos, which includes maintenance costs, which you know have been a real problem for us all through the year. We’re going to return them as rapidly as possible and therefore reduce our maintenance costs. At the same time, we will be taking deliveries of the new [A320] neos to help us with our fuel cost efficiency.”
IndiGo currently has 120 A320ceo aircraft in its fleet, most of which are leased. These operate alongside 100 A320neo and 14 A321neo, all of which are under five years old. The A320-200s, in comparison, have an average fleet age of 10.2 years, with some individuals in the fleet more than 15 years old.
The plan had always been to retire the A320ceo in favor of the neos, with the oldest due to leave the fleet by 2022. Now, IndiGo executives say that all 120 will leave the fleet within the next two years, perhaps even sooner. During the call today, they said,
“We have 120 CEOs in our fleet which will be going out over the next two years. The rate at which they go out has not been disclosed.”
Will there be a penalty for this?
When leases are cut short unexpectedly, there can sometimes be a financial penalty to pay. However, the way IndiGo has structured its fleet means it is unlikely to have any financial consequence as a result of the return of these aircraft. Dutta said,
“We keep aircraft only for five to six years, so things were due to be delivered back to the lessors anyway. If the market has been very strong, we might have extended the leases. But, of course, in the current market, we don’t want to. The engine costs are high, so we are happy to return the ceos with no penalties.”
Dutta was quick to stress the importance of IndiGo’s relationship with its lessors, and that the return of the ceos would be undertaken only by mutual agreement. He said,
“Our relationship with the lessors is very important. We respect our relationship and we want to nurture it, so we’re not going to do anything to upset that. We will return them in their scheduled time and if we have mutually agreed upon it, we may do it a little faster.”
When will the last ceo fly for IndiGo?
IndiGo, hampered by state regulations on capacity restrictions, is operating only a fraction of its fleet. Many of the ceos are due for heavy maintenance, so they will only be brought back into service if they are absolutely needed. Dutta said,
“We’re keeping a very sharp eye on the maintenance costs of the ceos. We will fly them only when we have to.”
The executives on the call indicated that there would be a further announcement regarding the phase-out of the ceos and how rapidly they will take delivery of their neo replacements. Right now, the airline has more than 600 neos on order from Airbus, including the gamechanging A321XLR.
While it’s highly unlikely a full 120 replacements will be delivered within two years, IndiGo doesn’t think that travel demand will require it to return to 100% of its fleet any time soon. Perhaps the last ceo has already flown for IndiGo?
Will you be pleased to see IndiGo as a neo-only airline? Let us know in the comments.