Given the truncated level of capacity on account of Covid-19, the challenge for IndiGo, as highlighted by the management, is managing cash and liquidity, rather than profitability and growth. While pent-up demand post opening up of flights led to strong loads and reasonable yields, the management indicated demand challenges going ahead on account of fear among customers, aggravated by a weak economy and multiple restrictions on flights.
The company is looking at cutting costs to the tune of Rs 3,000 crore to Rs 4,000 crore over the next few quarters by bringing down fixed cost portion, which accounts for 40 per cent of overall costs. The measures include replacing older aircraft, deferring supplementary leases, cutting salaries, renegotiating with suppliers, and lower discretionary spends and capex.
The near-term outlook will be tough given international operations are shut and domestic routes are flying at 20 per cent capacity. While the company is hoping for an improvement, it will be difficult to absorb costs despite the measures it is undertaking.
The only positive for the market leader is Rs 8,900-crore cash on books, which should help it navigate the crisis.