IndiGo Profit Slumps in Sign of More Turbulence
Posts 25% fall in profit hurt by lower yields and rising fuel prices
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.