In the wake of the coronavirus crisis, the country’s largest airline had struggled hard to perform better by taking various measures like cost optimisation, efficient fleet management, maintaining liquidity, ensuring levelled cargo capacity and experimenting with new network and revenue models. William Boulter, Chief Commercial Officer, IndiGo CarGo in an exclusive interaction with Ritika Arora Bhola, emphasises on the challenges faced by the airline and strategies adopted to sail through this difficult situation. He also elaborates on the company’s plans to reach out to more international destinations, to drive more cargo traffic and leverage capacity building options.
How we may best summarise the current state of the global air cargo industry. How is the industry reacting and responding to it?
Cargo demand has been buoyant on many routes, owing to the lack of the normal passenger aircraft belly space, and has supported our cargo-in-cabin charters, where with some minor equipment and procedural changes we have been able to carry significant payloads on our A320/321 passenger aircraft.
In general, global air cargo demand is down by roughly 50 per cent year-on-year due to the various economic factors, etc. and India broadly follows the same trend. However, the passenger aircraft international flights have further fallen by upwards of 90 per cent, driving a dramatic collapse in the amount of belly space available for cargo. Hence, this has stimulated many airlines to convert their pax aircraft to fly cargo in the main cabin as well as in the belly too. IndiGo did this in early April and now has around ten aircraft which have the necessary equipment to carry ‘cargo-in-cabin’.
What initial challenges you faced due to lockdown and other consequent measures?
This is a very difficult time for the world economy in general and for the travel sector in particular. The aviation sector has been through many ups and downs in its history, but we can all agree that this crisis is unprecedented in its impact.
The last few months have been very difficult for the aviation industry generally, as operations were grounded from March 25 to May 24, except for charter and cargo flights. As the Government allowed partial resumption of flights starting May 25, 2020, we resumed operations with much fewer flights than our pre-COVID capacity. For Q1 FY20-21, we ended the quarter at about one fourth of our original capacity and we hope to slowly build this up in a phased manner in the coming months. Due to these on-going COVID-19 related disruptions, we reported a net loss of 28 billion rupees during the first quarter.
Can you give us an overview of your flight operations in the wake of the crisis?
Our cargo line of business was performing extremely well in any case, but then went to a new level with the carriage of essential supplies and medicines in the early weeks of the lockdown.
We learned valuable lessons about the demand and scope for cargo which will definitely serve us well for augmenting our cargo operations in the months ahead. With currently 10 aircraft completely devoted to cargo, we plan to continue with ‘cargo in cabin’ operations even once we resume our full schedule.
We are operating international and domestic charters, and repatriation flights to transfer stranded citizens, which also contribute to our cargo result. We have flown over 1000 cargo charter flights from June-August 15, 2020.
Since the lockdown was imposed, passenger aircrafts were being used as freighters. How difficult or easy was it to load/unload cargo in passenger aircraft? Tell us about the techniques implemented for successful operations.
This is a new product, and as all products have a certain developmental cycle, we had it too. Initially, there were challenges with the volume of cargo we could carry on these flights, but we reworked our strategy and were able to turn this into our advantage.
Within the end of the first month of cargo charter operations, our team had broken the record of the highest tonnage carried on a Airbus A320 passenger aircraft. Thereon, we never looked back; we kept breaking our own record every time. The current highest volume carried on our cargo Charter A320 is 20,212 kgs.
Can you describe your carrier’s own business contingency plans? Do you have a crisis tool kit? Crisis processes, resources are in place and understood?
We at IndiGo CarGo were working with only belly capacity during pre-COVID times, however with the pandemic situation, this has changed rapidly. We had to adapt quickly to the emerging demands. The team worked tirelessly together to build a cargo charter product from ground up.
We have had our own share of challenges as this was a new product, but the team met these challenges with a proactive approach helping iron out any contingencies. The process laid out for the cargo charters are robust and have been built with room to continuously evolve and improve as per the market requirements. We have a very well trained and committed operations team who are now experts in handling these cargo charters.
Kindly share the efficient strategies the airline has adopted to sail through this difficult hour.
Apart from having successfully operated our cargo line of business throughout the pandemic, we have been continuously taking measures towards reducing our unit costs even further, making our fleet more efficient, ensuring our capacity is right sized to the market, and experimenting with new network and revenue models. Below are some initiatives taken by us at IndiGo:
- Negotiating better prices and terms with our partners.
- Not giving out any dividends this year and placing discretionary expenses on hold.
- Continuing to substitute NEO for the older CEO aircraft to increase cost efficiency, and prioritising flying our NEOs over the older CEOs.
- We had to undertake measures such as salary cuts and leave without pay; but unfortunately, these cost savings are clearly not enough to offset the decline in revenues. After carefully assessing and reviewing all possible scenarios, we had to bid a painful adieu to around 10 per cent of our workforce, in order to sustain our business operations. We created a ‘6E Care package’, which includes notice pay, severance pay, medical insurance, travel allowance to tide over the uncertainties emanating from this decision.
Measures like returning of older CEOs and taking deliveries of NEO aircraft, freezing of supplementary rentals and conversation with various suppliers to provide more favourable credit terms, will help in maintaining liquidity. We are looking to raise finance against the various unencumbered assets of IndiGo. We expect these measures to help us generate additional liquidity of INR 30-40 bn. Additionally, the board of directors have approved raising up to Rs 4,000 crore through a qualified institutional placement.
Kindly elaborate on your plans to reach out to more international destinations, cargo traffic and capacity building operations.
While we are the airline of choice for cargo to the Asian and Middle East destinations, our distinguished services have made our customers wanting us to partner with them for newer destinations like Tashkent, Almaty, Bishkek, Moscow and Cairo. These are new sectors which we have won because of the goodwill we generated by successfully building a reliable cargo charter product.
Our next focus is to continue supporting our farmers and manufactures in tier II and III cities to connect and sell their produce to international destinations, by giving them thorough connections and tailor-made solutions.
How do you look at India as a trade and investment destination? Do you think India has a potential to become a manufacturing hub?
The crisis that we have been living under has not only given us the difficult timings that we all are coping with, but it has also unleashed the potential that was hidden somewhere, and we believe that India as a country has the ability to emerge as one of the most efficient manufacturing hubs today.
India undoubtedly shares values and interests that align closely with those of Western countries and their business interests. Moreover, the country has a massive and intelligent entrepreneurial talent, a hefty marketplace and flourishing private enterprise and numerous start-ups. Additionally, the supply shortage and uncertainly in the long term due to the pandemic has led various global companies to shift their units outside China. It is good news that a lot of global companies are considering India as a potential manufacturing hub and may find a permanent home here.
Can you already draw conclusions for 2020?
The year 2020 has certainly been a difficult one which has given many challenges to almost every industry. For airlines, the difficulties have been especially stronger as it is one of the most fragmented industries in the world, with far too many players scrambling to outdo each other for growth and market share, and this pandemic situation has put us all in a situation where there is a race for the survival of the fittest.
However, we remain very bullish on the future of Indian aviation. All the underlying elements of rapid growth continue, and I think we have barely scratched the surface in terms of what is possible for the future. Undoubtedly, there are certain structural problems, but we are making steady progress. Perhaps, being the most difficult time for all of us, this year has also allowed us to explore the uncharted and emerge stronger with more result driven strategies in place.
What are the areas air cargo professionals globally need to keep an eye on and put up a unified front?
In an unpredictable environment, we must focus on the changing market dynamics and how we can support our end customers, by continuously building tailor-made solutions which help make their lives easier and augmenting their efforts to build a successful business.