Monday, September 11, 2017

IndiGo eyes wet lease to cash in on winter traffic

New Delhi: A slowdown in the delivery of new aircraft has forced India’s biggest airline, IndiGo, to consider the wet-lease option to raise its passenger capacity for the upcoming winter schedule.
The airline is in talks with Lithuanian airline SmallPlanet and troubled European airlines Air Berlin and Alitalia to wet lease at least seven A320 planes, sources close to the development said. While IndiGo has been dry leasing older planes since 2015, this will be the first time the airline will resort to wet lease.

Wet lease, an arrangement under which the lessor airline provides aircraft along with crew, maintenance, etc to the lessee, is costlier than dry lease and may lead to a spike in operational cost for IndiGo. But if the airline does not deploy enough capacity, it fears losing market share, besides lucrative slots at airports.

The arrangement will be only for the winter season, which will end in March 2018.

“If you see the capacity guidance given to the airline, it is 20 per cent increase in available seat kilometres (ASK) in FY18. In the current scenario, it’s not possible to maintain that without leasing planes. The airline will go for a short-term wet lease, expecting huge demand in the winter season,” said a source.

“Under wet lease, the induction of planes becomes faster. IndiGo will only pay a fixed amount every month and the lessor will take care of operation and maintenance,” the source added. IndiGo did not respond to queries.

Experts, however, said the move would push up the airline’s operational cost. “Lease cost ranges between 0.8 per cent and 1.2 per cent of the aircraft’s cost, depending on factors like its age. Wet lease should be in the high range and dry lease in the lower range. IndiGo may go for older planes to bring down the cost,” a sector analyst said.
11/09/17 Arindam Majumdar/Business Standard