India’s largest airline IndiGo will sacrifice capacity growth in the face of regulatory uncertainty over Pratt & Whitney (P&W) engines in the Airbus A320 and A321 aircraft.
Softness in airfare and zero-aggressive capacity plan from the other big daddies of Indian skies give IndiGo the edge. The airline had pared its capacity growth forecast by almost 7 per cent for the fourth quarter (Q4) of 2019-20 (FY20) and by 3 per cent for the entire year.
“The Directorate General of Civil Aviation (DGCA) order is likely to have an impact on future capacity. Expect a year-on-year capacity increase of 15-20 per cent in Q4FY20 and 22-23 per cent in FY20,” the airline said in a presentation to market analysts.
The previous forecast was 22 per cent for the third quarter of FY20 and 25 per cent for FY20. However, that will not harm the airline’s profitability, it said, while retaining its profit forecast.
The aviation regulator on November 25 had barred the country’s largest carrier from operating the Airbus A320 and 321neo aircraft with turbine blades built with titanium, which are prone to damage, leading to midair engine shutdown. The airline will have to replace such aircraft with sturdier engine turbine blades built with nickel-chromium alloy, according to a directive issued by the DGCA.
Due to the order, IndiGo had the uneviable task of replacing 11 engines in a month or see its growth plans go awry.
In 2018, when IndiGo had its aircraft grounded or deliveries halted, it had leased around 25 aircraft from the secondary lease market, and extended the leases of its existing aircraft. It cost IndiGo hard as the numbers during the July-September quarter showed that the airline’s expense due to lease and maintenance had mounted by more than 80 per cent. IndiGo said that the cost impact of extending the leases would last up to 2021-22.
This time, the capacity increase has also been impacted by delivery delays due to industrial issues in Germany’s Hamburg.
The airline, sources said, also expects DGCA to give more time to replace the engines if the Federal Aviation Administration (FAA) in its review doesn’t give additional directives. The FAA has solicited comment on a directive that operators of PW1100G family of turbofan engines replace the main gearbox assembly and electronic engine control software.
“The airline wants to grow, but a quarter of flat growth will not harm its future prospects. There will be some tweaks in network planning and the airline may postpone some of its destination launches. But it will maintain its schedule integrity,” said a person privy to the development.
He said that with yields already remaining low, even if some growth plans are delayed, it will not put competitive pressure. “The 737 MAX is unlikely to return before the middle of next year. IndiGo’s rivals will not add capacity aggressively any time soon,” he said.