The Wadia Group’s first foray in the Indian aviation sector about 16 years ago, with ‘Go Air’ now rebranded as ‘Go First’, has been a bittersweet experience. Starting operations as the Low Cost Carrier (LCC), the group rebranded it as Go First in May 2021 under a new Ultra Low Cost Carrier (ULCC) avatar, which aims to target customers across young Indians and Micro, Small & Medium Enterprises (MSME). The ULCC’s plans for the future involve increasing its flight frequency to serve slot constrained airports that it already operates in and expanding into Tier-II and Tier-III cities in India. When international air travel resumes, Go First targets new destinations in Southeast Asia, South Asia and the Middle East.
Turbulent times
The shutdown of operations between March and May 2020 induced by the first wave of the pandemic left the airline with a net loss of INR 471 crore in the nine months of FY21. It will be a similar story this year, and the airline has defaulted on several of its aircraft lease agreements, unable to make payments from February 2020 to March 2021. Its market share as of June stood at 8.3% compared to 54.7% of market leader IndiGo as per DGCA data.
Following its rebranding, the airline issued a Draft Red Herring Prospectus for an Initial Public Offering (IPO) worth INR 3,600 crore in May; the proceeds to be used towards repayment of outstanding borrowings of about INR 2,000 crore and replacement of letter of credits issued to certain lessors towards securing lease rental payments and future maintenance of aircraft worth INR 280 crore and clearing INR 255 crore of fuel bills of Indian Oil Corporation. Fuel costs remain a major burden for the airline, accounting for 33.3%, 33.1%, 27.3% and 14.8% of its total expenses in fiscals 2018, 2019 and 2020 and the nine months of FY21, respectively.
For airlines to be profitable, a combination of high aircraft utilisation rates, passenger load factors, and revenue yields is required. The impact of the pandemic has been disastrous for airlines that operate with low-profit margins and high fixed costs. Indian carriers have been further impacted due to their preference for the ‘Sale and Lease Back’ model in which their aircraft on order are sold to lessors and then taken back on lease by the airline. As of March 31, all of its fleet at that time (55 aircraft) were operated under fixed-rate leases. Go First, however, still has some aspects going for it, such as its fleet of modern fuel-efficient A320neo single-aisle jetliners, which help it keep maintenance and training costs under check. The airline has stated that its current and projected fleet will remain comprised of the A320 family. It also has established positions in slot-constrained airports and history of efficiently operating its aircraft.
Conservative growth
IndiGo which began commercial operations in August 2006, has over 270 aircraft (as of June 30). Since its inception, IndiGo has placed orders with Airbus and ATR for a total of 880 airplanes as compared to Go First’s orders for 159 aircraft (15 A320ceo and 144 A320neo). Starting in July 2016, when Go First took delivery of its first A320neo, it ended up more than doubling its fleet to 50 aircraft by June 2019, and if not for the pandemic, it would have been nearing 100 aircraft. It presently has a fleet of 48 A320neos and eight older and less efficient A320ceo single-aisle jetliners.
Go First remains the only Indian airline to operate a single aircraft type in the Airbus A320ceo and neo. IndiGo, for example, operates a mix of A320/321s and ATR-72s, while SpiceJet operates Boeing 737s along with De Havilland Canada Q400s. Unlike IndiGo, Go First has thus far opted not to make any orders for the larger A321neo jetliners.
Go First appears willing to complete deliveries of the remaining 96 A320neos from its firm order for 144 aircraft. However, it has deferred the induction of new aircraft and is now re-negotiating aircraft delivery rates with Airbus. Go First’s operating aircraft fleet will only feature a modest increase to 60 and 71 aircraft (net of retirements) by the end of Fiscals 2022 and 2023, respectively. These will include delivery of eight new aircraft in FY22, followed by 14 in FY23, with the rest later.
The promise of efficiency
The induction of the A320neo into service with Go First introduced innovations such as the Spaceflex configuration allowing seating for 186 passengers along with the promise of unbeatable operating economics due to its new generation Pratt & Whitney’s (P&W) Geared Turbofan engines and Sharklet wing tip devices. These originally provided the airline with 15% fuel efficiency from 2016 and 20% by 2020.
The P&W engines, however, were problematic on entry into service as they adversely affected its operations in FY19 and FY20, owing to bearing failure, combustor erosion, low-pressure turbine blade fractures and others. The situation (also faced by IndiGo and other Indian GTF operators) led to the Director-General of Civil Aviation (DGCA) asking for engine modifications to resolve these issues and lead to a significant portion of the Go First’s fleet being grounded, awaiting modifications to be completed.
Over the course of FY18, FY19 and FY20, one, eight and nine aircraft were grounded. As of May, six of its A320neos were awaiting their “airworthiness” certificates from DGCA after engine modifications. Go First raised claims amounting to $ 67 million with P&W and had received an advance of $ 10 million till December 2020, pending final settlement between both parties. Out of Go First’s fleet of 56 aircraft, 48 are now powered by P&W’s GTF engines, while the eight older A320ceo aircraft are fitted with engines from CFM International.