IndiGo Builds Up Cash Reserves As It Prepares For Third Wave

As IndiGo slowly begins its recovery from the second wave, it’s already preparing for a third wave. The airline plans to build up cash reserves of over ₹7,500 crores ($1.02 billion) to ensure that it can weather any more challenges in the future. Let’s find out more about how and why IndiGo is building up this war chest.

IndiGo A320neo
After a second wave that decimated traffic, IndiGo is building back up for any future crises. Photo: Airbus

Huge

In an interview with Financial Times, IndiGo CEO Ronojoy Dutta spoke about the future of Indian aviation and his airline’s plans. The news comes days after IndiGo recorded a ₹1,174 crore ($160mn) loss for the first quarter of 2021 (Q4 of the fiscal year). Losses are expected to deeper during the April-June quarter, which saw passenger levels fall drastically due to the second wave in India.

However, IndiGo is already deep in preparations for any further shocks. The carrier has already passed a plan to raise ₹3,000 crores ($410 million) from qualified investors in the future. In addition to this, IndiGo also plans to raise another ₹4,500 crores ($615 million) through bank credit lines and sale-and-leaseback deals with lessors.

IndiGo A321neo
IndiGo’s aircraft deliveries are unlikely to slow down, with sale and leaseback playing a big part in the airline’s capital build-up. Photo: Airbus

This $1 billion war chest is all in preparation for India’s third wave of COVID-19. Doctors have warned that another wave is extremely probable, and everyone must prepare. IndiGo isn’t taking any chances and is creating a huge fund to survive. In a statement, Dutta said,

“The doctors tell us there will be a third wave. There are no ifs and buts about it, and it will probably come around November, December…The board says ‘look, the environment is volatile… What if we go for another three months’ shutdown, then what? And the revenue is zero?’ It’s for that sort of disaster scenario that we are building insurance.”

Enviable

The second wave has hit airlines extremely hard. While flights were not shut down like during the first wave, passenger traffic fell sharply. From 313,000 passengers in the first week of March, only 57,000 travelers were getting on flights in late May. This meant carriers had to slash capacity sharply and saw revenues shrink drastically.

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With a third wave expected, IndiGo is planning far in advance. This leaves the carrier in an enviable position compared to others in the industry. At a time when airlines are unable to pay employees their salaries, the industry is still reeling from the current wave. However, IndiGo has already seen a recovery begin and expects to see things getting better soon.

Indian Airlines Getty
IndiGo’s planning is in contrast to other airlines’ current woes and cash crunches. Photo: Getty Images

IndiGo expects to see many “revenge vacations” after being locked in for nearly three months. This will boost capacity and passenger traffic in the short run and help carriers boost their revenues. However, a full recovery will take until at least the middle of 2022, if not later, as vaccinations and border restrictions remain slow moving.

For now, expect IndiGo to continue its recovery and slowly build back to early 2021 levels and beyond.

What do you think about IndiGo’s planning for the third wave? Let us know in the comments!

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