To IndiGo or not to IndiGo, that is the question

The marquee airline was flying through an air pocket when the pandemic hit. Will its cash hoard see it through? 

The headline around IndiGo for well over a year now has been about its warring co-founders. Rakesh Gangwal and Rahul Bhatia are two diametrically opposite personalities — one methodical and operations-oriented, and the other driven and people-oriented — and all has not been well between the two billionaires.

Corporate India has a long history of founders — both professionals and families as well — not getting along. On many occasions, the discord is played out quite embarrassingly in public view. An onlooker may be reminded of the drama that unfolds in a big Indian family. At InterGlobe Aviation, the company that owns the IndiGo brand, the conflict has been bitter with allegations relating to corporate governance and misuse of position flying thick and fast. For an airline that prided on high efficiency levels, with its on-time USP being one such, it could have done without this high-profile dispute.

Just as the cracks began to widen, the COVID-19 crisis started to unfold. The pandemic then took centrestage. The aviation sector has been among the worst hit with planes grounded for two months and then taking off with reluctant flyers. It has reflected in the numbers and for the last quarter of FY20, IndiGo was in the red by Rs.8.7 billion (compared to profit of Rs.4.96 billion in the preceding quarter and Rs.5.96 billion a year ago). It included a foreign exchange loss of Rs.10.1 billion due to weakening of the rupee, primarily comprising mark-to-market losses on capitalised operating leases. With much of India staying indoors, the story was nothing remarkable for this June quarter, too. For Q1FY21, the company’s revenue stood at Rs.11.4 billion with a net loss of Rs.28.44 billion.

Understandably, airlines across the country have run out of ideas and they can do precious little except wait for the overall business climate to change. There was a sigh of relief when airlines commenced operations on May 25. However, barely 30% of the flights were in the skies.

The scenario has been no better. To be fair, airlines across India (and the world as well) have been brutally hit by the pandemic. Right now, it is only about holding on to cash to weather the crisis well. By virtue of its leadership position with a 48% market share, IndiGo is relatively better placed than its peers. Combine that with a tight cost structure, an innovative model (a sale and leaseback model where IndiGo buys the aircraft, sells it to a lessor and then leases the plane back), network connectivity and you do have a good story.