INDIGO REPORTS FIRST QUARTERLY LOSS SINCE LISTING
Posts net loss at ~6.52 billion, may look at acquisitions ‘opportunistically’
IndiGo's parent, InterGlobe Aviation, reported a loss of ~6.52 billion in the September quarter of 2018-19, as higher costs and intense competition took a toll on the bottom line. This is the first time the carrier has posted a quarterly loss since getting listed in November 2015. IndiGo, the country's largest airline, had a profit of ~5.51 billion in the year-ago period.
India’s largest airline IndiGo posted its first loss since public listing. Yet, it vowed to aggressively participate in a price war that now threatens to saddle India’s airlines with heavy losses because of high fuel prices and a weak rupee.
The airline blamed rivals for the prolonged low-fare environment, saying that it has no option but to match the fare in order to hold onto its market share. “It is never our practice to take the lead in discounting fares, but owing to the current industry environment, IndiGo had no choice but to match them,” IndiGo cofounder and interim chief executive officer (CEO) Rahul Bhatia said. On Wednesday, IndiGo announced a sale offering a million seats between November and April on discount leading to murmurs among rival carriers.
The airline reported a net loss of ~6.52 billion in the three months ended September. Revenue rose 17 per cent to ~61.85 billion from a year earlier, as IndiGo flew more passengers. That came at the expense of yields as intense competition restricted its ability to raise fares to sufficiently cover higher costs. Its yield, which measures average earnings per passenger per kilometre, declined by 10 per cent to ~3.213 as compared to ~3.52 during the same period last year.
On the other hand, expense for the same rose by 24 per cent to ~3.74 as compared with ~3.01 in the corresponding period last year. The net loss would have been higher had the airline not taken deferred tax credit of ~3.28 billion.
While analysts have been saying that there may be a mismatch between demand and supply in the market and airlines need to rationalise addition of planes, the IndiGo management instead increased capacity and blamed rival airlines for discounting.
For the next quarter, IndiGo has forecast that capacity will increase by 35 per cent — the highest in the airline’s history. The airline’s rapid capacity addition (it added 20 planes in Q2) has been blamed for subdued fares in the market.
The management, in its justification, said that the company’s lowest cost structure allows it to fly more seats despite high cost of operation. “Other companies may differ but we find it profitable to fly more planes,” IndiGo chief financial officer Rohit Philip said when asked if the airline would lease out planes to rationalise capacity.
Analysts remained concerned about the justification and questioned the management on why the airline isn’t taking steps to rationalise pricing despite having a 43 per cent share of the market. “We were the first airline to introduce fuel surcharge but none of our competitors introduced it which forced us to roll it back. The latest sale is for travel post Diwali when traffic slows down,” the airline’s chief commercial officer Willy Boulter said.
“We will look at acquisitions opportunistically,” Bhatia said in the post-result conference call on Wednesday.
The airline had earlier expressed interest in acquiring Air India’s international operations but withdrew its offer after the government refused to sell on a piecemeal basis. Eventually, Air India disinvestment was called off as no bids were received.
Asked about the airline’s interest in acquiring other stressed domestic airlines, Bhatia said, “If something comes along, which is attractive, we will look at it. We will look at acquisitions opportunistically.” He, however, said the current focus of the airline was to build large air transportation network in the country and the management was terribly busy with it.
Analysts expressed caution that IndiGo’s numbers suggest airlines’ inability to control market dynamics and near-term pressure will increase.
“Don’t see near term correction at this stage — likely higher oil prices post November 4 could trigger another industry downside. Indigo’s strength of a very strong balance sheet and execution capability continue to give it a structural advantage but competitive intensity, which is likely to sharpen further, has visibly impacted us,” Kapil Kaul, CEO, South Asia of aviation consultancy firm CAPA said.