IndiGo Profit Slumps in Sign of More Tur­bu­lence

Posts 25% fall in profit hurt by lower yields and ris­ing fuel prices

The Economic Times - - Brands: Creating Desire - Our Bureau

Mum­bai: InterGlobe Avi­a­tion, which op­er­ates un­der the air­line brand IndiGo, Tues­day an­nounced a 25.1% de­cline in its quar­terly net profit hurt by lower yields and ris­ing fuel prices.

The air­line’s in­come from its cash re­serves, which have al­ways richly contributed to its prof­its, too was un­able to sig­nif­i­cantly stem the earn­ings de­cline in Oc­to­ber-De­cem­ber.

An­a­lysts said the earn­ings from In­dia’s big­gest air­line by mar­ket share for­bodes im­mi­nent and ris­ing pres­sure on In­dian car­ri­ers’ re­cent crawl-back to prof­itabil­ity.

IndiGo posted a net profit of ₹ 486.5 crore in Oc­to­ber-De­cem­ber com­pared to ₹ 650 crore a year ear­lier. To­tal op­er­at­ing rev­enue rose 16% to ₹ 4,986 crore.

The airlne’s yields dropped 16%. Fuel cost rose to ₹ 1,671.2 crore from ₹ 1,165.8 crore.

Price wars and sell­ing be­low costs have started deeply im­pact­ing the per­for­mance of In­dian car­ri­ers, wip­ing off prof­its gar­nered in the course of the last few quar­ters. Worse, prices of avi­a­tion tur­bine fuel — a de­cline in which had im­proved the car­ri­ers’ for­tunes — have be­gun to inch up. Cost of the fuel at the Delhi air­port rose 8% in Novem­ber com­pared to Oc­to­ber, then de­clined a tad in De­cem­ber be­fore ris­ing again in Jan­uary. Cur­rent fuel prices are at the lev­els of July, 2015. IndiGo’s rev­enue per avail­able seat kilo­me­tre (RASK) de­clined 13.1% dur­ing the quar­ter. Cost per avail­able seat kilo­me­tre (CASK) re­duced by 2.7%. CASK ex­clud­ing fuel de­creased 8%. RASK and CASK, the best known mea­sures of an air­line’s op­er­a­tional ef­fi­ciency, are cal­cu­lated by di­vid­ing to­tal op­er­at­ing in­come or cost by num­ber of avail­able seat kilo­me­tres or ASKs. ASK or avail­able seat kilo­me­tre is a mea­sure of an air­line flight’s pas­sen­ger car­ry­ing ca­pac­ity. “The Q3 fi­nan­cials re­flect the begin­ning of a chal­leng­ing en­vi­ron­ment for the in­dus­try. IndiGo’s fuel costs rose by 44% and the cur­rency im­pact was 2.75% on a year-on-year ba­sis,” said Kapil Kaul, south Asia CEO at CAPA-Cen­tre for Avi­a­tion, a Syd­ney-based con­sul­tant. Kaul said “re­set­tling of prof­itabil­ity ex­pec­ta­tions is crit­i­cal as mar­ket dy­nam­ics change sig­nif­i­cantly. The in­dus­try will add 60-65 air- craft in FY18 which will in­crease sup­ply dy­nam­ics sig­nif­i­cantly and with cost creep of over 10% likely, see emerg­ing prof­itabil­ity chal­lenges,” he added.

A se­nior ex­ec­u­tive at IndiGo said in a con­fer­ence call with an­a­lysts that the gov­ern­ment’s re­cent de­mon­eti­sa­tion move also im­pacted rev­enues es­pe­cially on cargo.

Cargo rev­enues cur­rently con­sti­tute half of IndiGo's an­cil­liary or non core rev­enues. IndiGo’s other in­come — pri­mar­ily from in­vest­ments on its cash re­serves — rose 43% to ₹ 172 crore, but was un­able to sub­stan­tially off­set the im­pact of a weak op­er­at­ing per­for­mance.

As of De­cem­ber 31, IndiGo had to­tal cash of ₹ 8,455 crore. To­tal debt on the air­line's books was ₹ 2,747 crore.

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