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05 August 20224 mins read by Angel One
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Overview of IndiGo’s Strategy

IndiGo, one of Asia’s largest budget airlines, plans to sell shares to raise 30 billion rupees ($409 million) as India’s pandemic outbreak worsens, putting any domestic or foreign air travel recovery on pause. IndiGo, which is owned by InterGlobe Aviation Ltd., has approved a plan to raise funds by selling shares to major investors, according to a stock exchange filing. The step comes after it said it didn’t need capital a few months ago.

IndiGo shelved plans to raise up to 40 billion rupees in January, claiming that the company’s internal cash reserves would be adequate in the event of a demand recovery. That was before a second wave of virus cases exploded in India, claiming the lives of tens of thousands of people. In February, Pande resigned and was replaced by Jiten Chopra. The rapidly increasing pandemic caseload in India has disappointed the country’s air travel industry, which had only recently begun to show signs of recovery, especially on domestic routes. Last year, airlines in the South Asian country lost $2 billion in nine months. The second wave has pushed back the recovery time for foreign travel by six months and three months for domestic travel.

Airports, such as Delhi International Airport Ltd. and GMR Hyderabad International Airport Ltd., will see a drop in revenue due to a drop in traffic, dampening their already bleak financial numbers. Pande said on an earnings call in January that IndiGo is burning about 150 million rupees of cash every day. SpiceJet Ltd., India’s second-largest airline, has deferred half of its employees’ wages, though Chairman Ajay Singh will not be paid at all. The Indian government has mandated that airlines operate at 80 percent capacity.

As demand for new planes declines, aircraft manufacturers Boeing Co. and Airbus SE have lowered production goals. IndiGo is the most important customer for Airbus’s best-selling A320neo planes. IndiGo recorded a larger-than-expected net loss of 6.3 billion rupees for the three months ended Dec. 31, compared to a record deficit of 12 billion rupees in the previous quarter. The period’s revenue was down 51% year on year, while total cash was 183.7 billion rupees. IndiGo CEO Ronojoy Dutta said at the time that the company was looking forward to a gradual opening up of international scheduled flights because increased flexibility and aircraft utilisation are vital to the company’s return to profitability.

Employees in the aviation industry are fearful of the worst

Flight crews, ground workers, and other airline employees face an uncertain future as the second pandemic wave has resulted in a sharp drop in passenger demand, forcing some airlines to slash salaries and take other steps to get through the crisis. During the national lockdown in March and April of last year, airlines resorted to wage cuts (including reductions in flying allowances), mandatory leave without pay, and even work cuts. With the increase in diseases, some employees expect the firms to take additional cost-cutting measures, such as reducing staffing, in order to survive the crisis.

SpiceJet Ltd has slashed all of its employees’ salaries by up to 50% in April due to the pandemic’s disruption. Workers at the low-cost carrier have launched an online petition against the company’s management, claiming that despite risking their lives to do their jobs, they are underpaid, with some full-time employees receiving only a portion of their salaries.

Meanwhile, many Air India employees are facing an uncertain future as a result of the government’s proposed proposal to privatise the airline this fiscal year. Last year, the airline slashed flying benefits, which account for a significant portion of pilot wages, resulting in a 55-58 percent pay cut for the carrier’s pilots. After much protesting, the management decided to restore 5% of the cut, which the pilots refused.

The second wave of the pandemic has resulted in a dramatic drop in passenger traffic, prompting most players to remove capacity almost immediately. Domestic passenger traffic fell below 1 lakh per day for the first time since August 2020 on 3 May.

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