Analyst corner: Yield/ASK in line, but higher cost hits Indigo profitability

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Published: October 26, 2019 1:03 AM

ASK increased by 24% y-o-y to 24.2 billion km. The company added ~10 new planes during the quarter, with addition of seven new domestic and six new international routes (China – 2, Vietnam – 2, Myanmar – 1, Saudi Arabia –1).

This cost is expected to come down significantly from FY22 as deliveries for A321neos replace the older aircraft and the share of A321neos increases in the total fleet.

INDIGO reported a yield of Rs 4.0 (in-line) for Q2FY20. However, RPK of 20.2 bn came in below our estimate of 21.4 bn, resulting in net sales of Rs 8,110 crore (+31% y-o-y) — a miss of 8%. Ebitdar was down 13% y-o-y to Rs 97 crore, led by a forex loss of Rs 450 crore (relating to mark-to-market due to capitalisation of operating lease liabilities) and accrual of additional rental cost of Rs 320 crore on account of reassessment of supplementary rentals. Forex loss was at Rs 450 crore (v/s a loss of Rs 340 crore in Q2FY19 and a gain of Rs 40 crore in Q1FY20). The company reported a net loss of Rs 1,060 crore (v/s estimate of a gain of Rs 620 crore, a loss of Rs 650 crore in Q2FY19).

ASK increased by 24% y-o-y to 24.2 billion km. The company added ~10 new planes during the quarter, with addition of seven new domestic and six new international routes (China – 2, Vietnam – 2, Myanmar – 1, Saudi Arabia –1). However, it lowered the ASK growth guidance to 25% from 30% for FY20.
Yield was in line with our estimate at Rs 4.0 (+7% y-o-y, -12% q-o-q).

RPK was up 23% y-o-y at 20.2 billion, with RASK up 5% y-o-y at `3.35. There was an improvement in the 0-15 day domestic booking share to 46%. Load factor stood at 83.5% (-100bp y-o-y, -535bp q-o-q; our estimate: 88.0%), as the company awaited further allotment of Jet slot in July and August, impacting aircraft utilisation.

CASK increased 2% y-o-y to Rs 3.78 (+11% q-o-q), led by lower aircraft utilisation and higher employee cost. Employee cost was up 26% y-o-y to Rs 0.5/ASK (as a result of salary hikes and ~600 pilots currently under training who are expected to start flying in H2FY20). However, fuel cost was lower by 17% y-o-y at `1.30/ASK.

IndiGo has re-assessed its accrual estimate for heavy maintenance and overhaul cost of engines, and has considered an additional accrual of Rs 320 crore as of September 20, 2019. The company expects the maintenance cost to remain high for the later part of FY20 too as the A320ceo engines (with extended leases starting 2016) go for the second shop visit. This cost is expected to come down significantly from FY22 as deliveries for A321neos replace the older aircraft and the share of A321neos increases in the total fleet.

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