Interglobe Aviation, the company that owns IndiGo airlines – the country's largest airline by market share – reported a whopping 294.5% y-o-y increase in net profit.
Interglobe Aviation, the company that owns IndiGo airlines – the country’s largest airline by market share – reported a whopping 294.5% y-o-y increase in net profit to Rs 551.55 crore for the quarter ending September 30 on the back of substantial jump in revenues and overall improvement in yields due to the efficient cost management and compensation received from engine-maker Pratt and Whitney for grounding of the A320 Neo aircraft. As a result, the airline beat Bloomberg’s profit estimate of Rs 320.8 crore for the quarter. The second quarter in the fiscal is generally healthy for the airlines owing to the festive season that starts from August. The revenue during the period increased by 26.9 % y-o-y to Rs 5,290.9 crore. The operating profit, or the EBITDAR (earning before interest, tax, depreciation, amortisation and rentals), increased by 61% y-o-y to Rs 1,581.1 crore.
In terms of expenses, the Gurgaon-based airline saw its fuel cost increase by 6.1% y-o-y to Rs 1,647.25 crore while the aircraft rentals also spiked by 6.1% to Rs 819.25 as a result of the 18% GST paid by the airline on the repair and maintenance of the engines. Other expenses during the quarter also increased by 31.62% y-o-y to Rs 1,455 crore. The yields – measure of an airline’s profitability – improved by 8.9% y-o-y to Rs 3.97 per kilometre while the revenue per available kilometre (RASK) improved by 12.6% y-o-y to Rs 3.52 per kilometre. Indigo’s total capacity improved by 14% to 15.1 billion ASKs (average seat kilometre). “In the Q2 of the last fiscal, we started matching the competition but we could not do it optimally. Subsequently, we put in a team for efficient revenue management and for managing the operations. We also took proper corrective measures. Hence there has been an improvement in yields based on the corrective measures taken but we do not see this kind of improvement in RASK, going forward,” said Aditya Ghosh, president and whole-time director, Indigo.
After the implementation of the goods and service tax (GST), airlines have to pay 18% GST on the maintenance of aircraft engines and it may have an adverse impact on the financial heath of the airlines as it is way higher than what it was in the pre-GST period. IndiGo also received compensation from Pratt and Whitney for the grounding of the aircraft and the airline is trying to source spare engines to fly most of its A320 Neo planes. “We are making sure that we have enough spare engines. If we have enough spare engines, the planes will be able to fly and things will be fine thereafter. Going forward, our profitability will not improve once this problem gets resolved since we are getting compensated by Pratt and Whittney,” explained Ghosh.