Delhi-based low-cost airline IndiGo has reported its highest-ever quarterly earnings of Rs 171.609 billion and its highest-ever quarterly net profit of Rs 30.906 billion during the first quarter of the fiscal year 2023-24. Incidentally, the airline reported a net loss of Rs 10.64 billion in the previous equivalent quarter.
In a statement, the airline said this reflects strong operational performance and favorable market conditions. The strong financial results come when the Indian domestic air passenger traffic reaches the pre-COVID level of over 400,000 daily passengers. GoFirst allocated about 7 percent of the flights allowed to be operated during the ongoing summer schedule, went into voluntary insolvency, and ceased operations on May 3.
Another domestic low-cost airline, SpiceJet, has been facing trouble with its fleet and is said not to be operating its fleet of over 70 aircraft. All these factors have come together to ensure that IndiGo’s domestic market share moved from 60 percent earlier to about 63 percent.
Income up 31.8 percent year on year
For IndiGo, the total income for the quarter that ended June was Rs 171.609 billion, an increase of 31.8 percent over the same period last year. “For the quarter, our passenger ticket revenues were Rs 149.956 billion, an increase of 30.8 percent, while ancillary revenues were Rs 15.484 billion, an increase of 20.4 percent compared to the previous period,” the airline said.
The airline achieved a 0.1 percent decrease in total expenses for the quarter ended June 2023 at Rs 140.701 billion over the same period previously. IndiGo reported that the average fuel prices decreased by 22.5 percent, leading to a decrease in fuel Cost Available Seat Kilometers by 26.6 percent to Rs 1.60.
Commenting on the latest results. Pieter Elbers, the airline’s Chief Executive Officer, announced that he was pleased to “report a solid start to the year building on the positive momentum from the last two quarters,” adding that the airline “produced strong operational performance and welcomed the highest number of quarterly passengers which enabled the airline to generate the highest ever quarterly revenue and net profit for the quarter ended June.”
The airline had a fleet of 316 aircraft on June 30 this year, including 166 Airbus A320 New Engine Option (NEO), 87 A321neo, and two Boeing 777 (on damp lease), a net increase of 12 passenger aircraft during the quarter. At the Paris Airshow in June, the airline placed an order for 500 Airbus aircraft (125 A320neo’s and 375 A321neo’s) taking its order book for aircraft to over 1.000 aircraft.
Commenting on the latest results, Ansuman Deb, Vice President of Icici Securities, said that IndiGo reported strong results further supported by a continuing focus on internationalization (30 percent mix by year-end), a strong balance sheet (Rs 157 billion), and no cut in capacity guidance (north of mid-teens growth).
“We will not worry too much from fall in Q2 yields (15 percent down quarter-on-quarter as per trends till now) as it’s a seasonally weak quarter,” Deb adds.
Satyendra Pandey, Managing Partner, Aviation advisory firm, AT-TV felt that the IndiGo “results are exceptional to say the least.” Elaborating further, Pandey added: “Whether it’s the 18 percent PBT margin or the quantum of the profit, these are numbers that are hard to come by in Indian aviation.”
He is of the view that in addition to a strong operation combined with cost control measures, a combination of factors is providing strong tailwinds to IndiGo. “This includes a reduction in fuel costs, amortization of costs, and weakness across other airlines,” Pandey says.
Pandey is of the view that it may be noted that the results include a portion of the fleet that is grounded predominantly due to Pratt & Whitney Geared Turbofan engine issues. “Without that, the capacity would be higher. And IndiGo has worked through these issues, unlike some airlines.”
CEO Pieter Elbers said during an analysts call that IndiGo is still assessing the impact of the latest GTF issue, which requires accelerated engine inspections for parts that have been produced from contaminated powder metal. The problem has been found in engines produced between late 2015 and September 2021. The first estimate this affects the Indian carrier by only a single-digit number.
Pandey cautions that the question is the sustainability of these results. “The next few quarters will no doubt be very strong for IndiGo but macro-economic and geopolitical headwinds cannot be ruled out. Finally IndiGo also has to increasingly deal with the tyranny of size. With over 55 percent of the market, the moves are being watched closely by all quarters.”