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Indian LCCs - Worrisome Financials, Widebody Ambitions

#1 Indian carriers’ dismal financial performance

The impact of COVID- 19 on airlines has been nothing short of devastating. With demand for travel at an all-time low, revenues from ticket sales have dropped drastically, but expenses such as aircraft lease payments and employee salaries are still the same. This widening divide between revenue and expenses has pushed airlines into deep losses, with most airlines burning money on a daily basis.

In this context, two of India’s largest low-cost carriers IndiGo and SpiceJet reported record quarterly losses. IndiGo, India’s largest airline, both by market share and fleet size, posted a quarterly loss of ₹2,844 crore during the first quarter of FY21. On the other hand, SpiceJet reported a loss of ₹807 crore for the last quarter of FY20. Not surprisingly, both carriers have attributed the lockdown and resultant suspension of flight operations to their dismal financial performance.

IndiGo is reportedly in a better position liquidity wise than its competitor SpiceJet, with at least ₹7500 crore of free cash in hand. Analysts say that this cash would ensure that IndiGo sails through the crisis comfortably. IndiGo is also taking proactive steps to reduce cash burn – the airline will be phasing out 120 Airbus A320ceo aircraft over the next two years, while inducting state-of-the-art fuel efficient A320neo aircraft.

Fig. From A320 ceo to neo (Source: Wikimedia Commons)

However, India’s ‘Red Hot Spicy’ airline, SpiceJet is in the red. The company’s auditors have raised doubts about the airline’s ability to continue as a going concern. They have also stated that the company has more liabilities than assets. SpiceJet has stated that the grounding of their 13 Boeing 737 Max aircraft and allied costs have added fuel to the fire.

Meanwhile, SpiceJet’s dedicated freighter subsidiary, SpiceXpress, has transported more than 25,000 tons of cargo since the lockdown began on 25th March. The airline was instrumental in transporting medical essentials such as PPE kits, thermometers, sanitizers and face masks as well as fresh produce such as fruits, vegetables and seafood. The revenue from its cargo operations has helped SpiceJet to boost its income and thereby offset some of the revenues lost out on the passenger operations.

#2 SpiceJet’s Maiden Wide-body Flight – Or Was It?

On 1st August, SpiceJet operated its first ever twin-aisle charter service from Amsterdam to Hyderabad/Bengaluru using an Airbus A330neo (A330 – 900) aircraft that it has wet leased from Portuguese wet-lease carrier HiFly. The repatriation flight carried over 200 Indians stranded in Amsterdam back home.

SpiceJet thus became an airline of many firsts – It became the first Indian LCC to operate a widebody aircraft, as well as the first Indian carrier to operate the aircraft type (A330neo). A spokesperson for SpiceJet has stated that plans to launch more flights to destinations in Europe and beyond are in the pipeline.

Fig. Passengers of the repatriation flight at Amsterdam Airport (Source: @flyspicejet)

Industry experts have hailed the smart move by SpiceJet – a move that will surely bring in much needed cash for the beleaguered carrier. Demand for repatriation flights is sky-high, but the supply is woefully short, thus commanding healthy fares for the flights on both ways.

However, SpiceJet faced quite a bit of backlash on twitter from industry experts for its ‘misleading’ marketing tactics. The airline had aggressively marketed the Amsterdam-Bengaluru flight as its own, despite not selling tickets for the flight on its own website. The aircraft was on a wet-lease, meaning that the lessor (in this case, HiFly) provides everything, right from the Aircraft, Crew, Maintenance as well as Insurance (ACMI). The lessee (SpiceJet) has to bear only fuel costs and a daily allowance and accommodation for the crew.

Another aspect that was pointed out was how the Amsterdam-Bengaluru did not operate with SpiceJet’s IATA code SG but with HiFly’s code 5K. However, the Bengaluru-Hyderabad domestic sector was operated with an SG code.

Fig. The A330-900neo aircraft at Hyderabad Airport (Source: @RGIAHyd)

The Directorate General of Civil Aviation (DGCA) has clarified that although SpiceJet had applied for approvals to import the aircraft on a wet-lease, some of them were still pending, and until then SpiceJet will not be able to use its own IATA code. Industry insiders have stated that it would take quite some time before the airline is allowed to use its own code.

Meanwhile, SpiceJet has secured slots at London Heathrow Airport with effect from 1stSeptember 2020 under the bubble agreement between India and the UK, making SpiceJet the first Indian LCC to operate from Heathrow. This move has surprised many in the industry, as it is extremely rare for LCCs to operate out of Heathrow due to very high slot prices. LCCs prefer to operate out of other airports such as Gatwick and Stansted.

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