India’s largest domestic airline says it is building a war chest of more than $1bn as it prepares for a third wave of Covid-19 infections, just as a brutal nationwide outbreak begins to recede.
Ronojoy Dutta, chief executive of IndiGo Airlines parent InterGlobe Aviation, told the Financial Times he hoped the carrier’s business would return to pre-pandemic levels by the end of the year but warned that another wave of coronavirus in November could cause more disruption.
The budget airline plans to raise Rs30bn ($410m) through a qualified institutional placement, an equity raising tool used in India, to prepare for a worst-case scenario. IndiGo also plans to source approximately $600m through bank credit and sales and leasebacks of aircraft.
“The doctors tell us there will be a third wave. There are no ifs and buts about it, and it will probably come around November, December,” said Dutta.
“The board says ‘look, the environment is volatile . . . What if we go for another three months’ shutdown, then what? And the revenue is zero?’ It’s for that sort of disaster scenario that we are building insurance,” he added.
Coronavirus cases have been declining steadily in India after hitting a peak in mid-May, though the country recorded a worldwide one-day record of more than 6,000 deaths this week, driven in part by the Delta variant first identified in the country.
However, there are still about 100,000 cases reported daily and many countries have issued travel restrictions for passengers from India.
Before the surge at the beginning of the year, Prime Minister Narendra Modi downplayed the threat of a second wave and claimed the country had won control over the virus.
As the second wave recedes, New Delhi has adopted more careful messaging, warning of a third wave and expanding its vaccination drive.
India’s aviation sector has been punished by regional lockdowns across the country. IndiGo’s passenger capacity dropped from 80 per cent in February to 30 per cent in mid-May.
InterGlobe, which has a market share of more than 50 per cent, this month reported its fifth straight quarterly loss.
However, Dutta said that a third wave was unlikely to be as damaging as the second one. “As long as [India keeps] vaccinating about 700,000 people a day . . . it will be a very flat wave,” he said.
He also expects IndiGo to benefit from Indians taking “revenge vacations” after being restricted to their homes for months, adding that the company has added new routes to holiday hotspots such as the Maldives.
The pandemic “has set India back at least two, three years”, said Dutta. “But we’ll catch up . . . I have great faith in the Indian growth story.”
His cautious optimism cut a contrast with the exuberance of Indian stocks, which recently hit record highs.
The World Bank slashed India’s growth forecast for this year from 10.1 to 8.3 per cent, blaming the second coronavirus wave.
“The recovery will start from August onwards, for three months it is still a virtual lockdown in many states,” said Madan Sabnavis, chief economist at Care Ratings.
“Now it’s almost assumed there will be a third wave coming, therefore there will be better preparedness,” Sabnavis added. “The playbook is more or less set.”