IndiGo turns in profit despite currency headwinds

UPDATE - Delhi-based low-cost airline IndiGo has reported a profit of Rs 8 billion excluding foreign exchange loss for its Q2 that ended in September. If the foreign exchange loss is included the net profit for the quarter ended stands at Rs 1.89 billion as against a loss of Rs 3.81 billion during the same quarter previously, the airline said in a filing to the stock exchange on Friday afternoon. The Indian Rupee has seen a sharp decline in its value against most foreign currencies including the dollar. In July, 1 Indian Rupee traded at about Rs 82 to a dollar which went up to over Rs 83 in September. CEO Pieter Elbers pointed out that the airline “has remained profitable for the last four quarters”, adding that this was “yet another profitable quarter despite the seasonal fluctuations and external headwinds coming into play.” The carrier reported its highest-ever quarterly results in Q1. IndiGo said that revenue from operations increased to Rs 149.43 billion, an increase of 19.6 percent. Capacity or Available Seat Kilometers stood at 35.3 billion during the latest quarter as compared to 27.7 billion previously, an increase of 27.7 percent. In comparison, Revenue Passenger Kilometers stood at 29.4 billion in the latest quarter as compared to 21.9 billion previously. 33.4 percent more passengers carried During the quarter under review, the number of passengers carried by the airline increased by 33.4 percent to 26.3 million passengers while capacity went up by 27.7 percent. IndiGo reported its fuel costs at Rs 58.56 billion, a drop of 6.4 percent. The airline had incurred fuel costs of Rs 62.58 billion during the same quarter previously. Total income for the quarter ended September 2023 was Rs 155 billion, an increase of 20.6 percent over the same period last year. “For the quarter, our passenger ticket revenues were Rs 130.69 billion, an increase of 17.6 percent, and ancillary revenues stood at Rs 15.51 million, an increase of 20.5 percent compared to the same period last year,” the airline said. Elbers further added that the airline continues to augment its network both domestically and internationally as “we added 10 new destinations in the past few months, taking the total number of destinations to 115 as of today.” Growing impact of GTF groundings During the post-results analyst call, Chief Financial Officer Gaurav Negi said that IndiGo is working hard to reduce the impact of the inspections and repairs of its Pratt & Whitney Geared Turbofan-powered Airbus A320neo family fleet. IndiGo has currently forty aircraft on ground, but this will increase as a peak in maintenance is expected in the early quarters of 2024. Received communication from Pratt & Whitney regarding the powder metal issue: as shop floor visits increase, things will become more clear, and this might lead to a high number of grounding of aircraft. We will take mitigating measures and lease more aircraft," Negi said. IndiGo has extended leases and reintroduced in total forty A320ceo's, while also damp leasing more aircraft. This should compensate for the grounding of the neo's. For now, the airline expects the impact on its full-year capacity for FY24 (which runs through March) to be limited. By the end of September, IndiGo had a fleet of 334 aircraft including 20 A320ceo's, 176 A320neo's, 93 A321neo's, 41 ATRs, two A321 freighters, and two Boeing 777s (on damp lease from Turkish Airlines), a net increase of 18 passenger aircraft during the quarter. Commenting on the results, Ansuman Deb, Vice President, ICICI Securities said that the latest results were better than expectations driven by better cost performance. “Growth guidance remains strong at 25 percent growth in Q3 Available Seat Kilometer,” he points out. Satyendra Pandey, Managing Partner, aviation advisory, AT-TV, pointed out that the profit is along expected lines given IndiGo's dominant market share, capacity outage due to GoFirst’s insolvency and operational challenges at Akasa, and the demand-supply imbalance in the market. “While the CASK ex-fuel reduced on a QoQ basis, there is currently a clear pressure on costs especially given the oil prices and rupee-dollar rates,” Pandey says adding that this pressure will likely continue and may even be exacerbated with the use of wet-leases and alternate capacity arrangements. He is of the view that as it stands IndiGo’s A320ceo fleet strength is only twenty aircraft. This number may go up given the Pratt and Whitney AD that is scheduled to come out this month and which presumably will lead to inspection/shop visits of engines based on cycle times. “Gradually IndiGo has deployed more capacity on the international segment which provides a natural hedge. Overall, with 65 percent of the market and pricing at or above its full-service competitors, IndiGo is looking at a strong if not very strong Q3,” Pandey said. He, however, cautions that fare wars cannot be ruled out and the impact will be seen in margins.

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