THE COMPASS
to a loss at the operating level. While fuel costs rose marginally over the year-ago quarter, given the falling crude oil prices, it was the high maintenance and employee costs that dented the performance.
Total expenses were 30 per cent higher than the year-ago quarter.
What led to higher unit costs was also the forex losses on operating leases due to rupee depreciation. Adjusted for this, unit costs would have been higher by 12 per cent, as against the reported 25.8 per cent spike. The company reported a loss of ~870 crore, as against a profit of ~595 crore in the year-ago quarter.
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 ~3,000 crore to ~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 ~8,900-crore cash on books, which should help it navigate the crisis.