Tuesday, April 10, 2018

IndiGo may cancel up to 90 flights a day, but its profitability won’t be hit too badly

Following DGCA (Directorate General of Civil Aviation) order to ground all A-320 Neos fitted with PW1100 engines beyond ESN 450, airline major IndiGo may have to cancel up to 90 flights per day, according to a report by Angel Broking.  “An airline operates the same aircraft up to 8-9 times during a day. So the grounding of 11 aircraft will mean that nearly 90 flights of Indigo will have to be cancelled per day,” Angel Broking said in a recent blog adding that it amounts to a capacity loss of nearly 8-9% of Indigo’s exiting flying capacity.

The move by the DGCA comes in after engine problems were seen to crete safety issues for passengers. “Keeping in the safety of aircraft operations, Airbus 320 neos fitted with PW1100 engines beyond ESN 450 have been grounded with immediate effect,” DGCA said in recent statement.

The DGCAs move is seen to impact IndiGo’s profitability. Angel Broking estimates the loss at Rs 213 crore per month. “Considering that the DGCA has grounded 11 aircraft of IndiGo, this translates into a daily loss of Rs.7.10 crore. Even if this ban was to last for just 1 month, this loss will translate into Rs 213 crore per month,” the firm said. While this is eye-popping, Angel Broking says that the financial hit may not be too steep.

The report says that IndiGo operates on about 20% slack implying that over a period of time the effective cancelled passengers will reduce as they are more seamlessly accommodated in other flights of IndiGo. “IndiGo is also currently accommodating passengers in other airlines just to keep up the relationship,” the report said.
10/04/18 Sushruth Sunder/Financial Express