GoAir moderates growth plans owing to rising fuel price, shortage of pilots

Wadia group-owned airline GoAir has realigned its growth plans owing to rising fuel price, troubles with new plane engines and shortage of pilots.

The airline has charted a modest expansion in the world’s fastest-growing aviation market and is simultaneously looking to lease out some of its old planes, as fuel cost is hurting profit.

According to sources, GoAir had appointed an external consultant to realign its network planning, following which it has decided to maximise frequency on the profitable metro to non-metro routes rather than adding new destinations.

It has also pushed its international foray to Maldives and Phuket to September, which was suppose to start last year. Recently, the airline has revamped its entire senior management with a new chief executive officer, chief operating officer and chief commercial officer. A GoAir spokesperson didn’t respond to detailed queries on the airline’s strategy.

“The taxation on jet fuel is the highest in India. Airlines cannot grow their operations in the prime Delhi, Mumbai routes where it can make money and the potential of good yield is very limited in airports outside the metros.

So, for a short period, we have decided to concentrate on where our strength lies. Expansion will be there but it will be controlled and will focus on increasing flights at all price points and time,” said a senior airline executive.

 

The spike in fuel cost has also forced the airline to plan leasing out its old A320 Ceo aircrafts to save fuel and earn additional revenues. This is another factor behind GoAir’s capacity adjustment move as the airline plans to use new deliveries replacing its old A320 fleet. The A320 Neo offers 15 per cent fuel saving over the conventional A320 planes.

People familiar with developments said the company was in discussions with airlines in Vietnam and Cambodia to sublease seven of its old A320 planes. 

These planes, which were supposed to be returned to the lessor between 2021 and 2023 according to the original schedule, would be leased out soon if negotiations are successful. "If there is an opportunity to return some of our older planes, we will do it but this will not be at the expense of growth. We can’t shrink to hit profitability.

Sub-leasing of planes will only happen if aircraft deliveries are normalised and engine issues are sorted," another airline executive said.

Currently, GoAir has grounded three aircrafts because of engine problem and the company is operating with 32 aircrafts.

While the airline had a plan to induct 24 Airbus A320Neo planes in 2018-19, the actual number of deliveries may be lesser as Airbus and Pratt & Whitney (PW) are rectifying engine issues. 

A recent Bloomberg report said Airbus would have around 100 A320Neo aircrafts by the end of June without engines and these form a part of its aircraftmaker's global order book. Queries sent to Airbus and PW spokesperson didn't elicit any response.

Out of 35 planes that GoAir has, 16 are of the Neo variant. As a low-cost airline, GoAir, has been a proponent of slow growth since expansion. From starting its operations in 2005, the airline has 35 planes and flies to 24 destinations and is stuck with a market share of less than 10 per cent. 

It had eyed a rapid expansion and placed an order for 72 Airbus A320 Neo planes in 2016 on the top of its existing order of taking it to 144 planes. However, the lingering engine problem has forced the company to moderate its growth plans. The engine problem has forced the airline to ground planes and has affected future deliveries.

Meanwhile, Jet Airways reported a loss of Rs 10.45 billion in the last quarter while low-cost carrier IndiGo’s profit dipped by 73 per cent.

“The sustained rise in crude oil prices coupled with depreciation of rupee pose a near-term pressure on the airlines’ profitability. India’s aviation market remains an unattractive proposition as industry headwinds could weigh on sector profitability,” SBI Caps said in a report. Adding to the worries, a shortage of trained pilots has also hurt GoAir’s expansion plans.

“One or two planes are grounded and some flights are being cancelled daily due to shortage of pilots,” said a GoAir pilot. However, GoAir executives deny any shortage, adding that the airline is training its first officers for commander role and will hire foreign pilots soon. 

According to documents reviewed by Business Standard, the airline has asked the Directorate General of Civil Aviation to increase the validity period of foreign crew licence from three months to six months.

Senior GoAir executives defended the airline's go-slow strategy saying this will yield benefit in long term. "If oil touches $100 a barrel, the decision to moderate capacity growth will be vindicated," an executive said.

 

Wings clipped

• Moderate capacity expansion in the near term
• Focus on the profitable metro routes with limited expansion in tier-II cities
• Plans to lease out older planes and operate only with fuel-efficient A320 Neo aircrafts
• Shortage of pilots have forced the airline to cancel flights
• Listed airline companies IndiGo, SpiceJet and Jet Airways have not changed their growth forecast yet