India’s IndiGo does not expect to be profitable until 2022

Indian low-cost carrier IndiGo does not expect to be profitable in the next 18 months, according to the CEO of InterGlobe Aviation, which operates the airline. 

At the moment, the airline is flying at about 32{3c4481f38fc19dde56b7b1f4329b509c88239ba5565146922180ec5012de023f} of its capacity, Ronojoy Dutta said on Friday.

IndiGo is one of the largest carriers in the country, with a fleet size of 274 aircraft as of June. It also operates international flights. 

“It’s going to be very hard to get profitable at this low levels of flying. But our plan is that we should be at 75{3c4481f38fc19dde56b7b1f4329b509c88239ba5565146922180ec5012de023f} of capacity by early next year. Once we hit that number, we see a better shot at getting profitable,” Dutta told CNBC’s “Street Signs Asia.”

“We won’t be profitable for the next 18 months is my guess,” he said, adding that the focus right now is getting to positive cash flow.

The company earlier this month said it will raise up to 40 billion rupees ($534 million) in funds through a qualified institutions placement, which allows publicly-listed firms in India to raise funds from accredited investors by issuing shares without undergoing a lengthy regulatory process. 

“Our expectation is by mid-next-year, we should be at about 85{3c4481f38fc19dde56b7b1f4329b509c88239ba5565146922180ec5012de023f} of capacity and India’s a little different from other mature economies,” Dutta said.

He explained that chances are the top-end customer segment, which mainly involves business travel, will take a hit long term. But that is likely to offset by an increased demand in commercial air travel.

Indians mostly travel out of state by train, which can take days to reach their destinations. That provides an opportunity for low-cost carriers like IndiGo and others to sell cheap flights that can cut down travel time. 

The coronavirus pandemic has led to a near-total collapse in air travel demand, forcing airlines to cut costs by suspending flight routes, laying off staff and reducing their fleets. 

Last month, InterGlobe Aviation reported a pre-tax loss of 28.42 billion rupees ($379 million) in the three months that ended in June, compared to a 15.09 billion rupee-profit a year earlier. Revenue fell more than 91{3c4481f38fc19dde56b7b1f4329b509c88239ba5565146922180ec5012de023f} for the quarter after flights were grounded for almost two months as India went into a national lockdown. 

IndiGo also announced it would lay off 10{3c4481f38fc19dde56b7b1f4329b509c88239ba5565146922180ec5012de023f} of its workforce and the senior management, including Dutta, has taken a pay cut. 

“We are continuously looking at our cost structure. We have taken some painful steps in employee costs. At the moment, we don’t have any plans to go further,” Dutta said. That could change if business conditions further deteriorate due to the pandemic, according to the CEO. 

India is one of the worst-affected countries in the world, with more than 3 million reported cases. The health ministry says a sizable percentage of affected individuals have been discharged.