IndiGo Q1 PAT declines 97% on escalating fuel costs

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Mumbai | July 31, 2018 4:25 AM

The country’s largest carrier IndiGo on Monday posted one of its worst quarterly performances in over three years, with profits plummeting by as much as 97% year-on-year to Rs 27.8 crore during the April-June period.

IndiGo Q1 PAT declines 97% on escalating fuel costs

Missing Street estimates by a huge margin, the country’s largest carrier IndiGo on Monday posted one of its worst quarterly performances in over three years, with profits plummeting by as much as 97% year-on-year to Rs 27.8 crore during the April-June period. The airline also saw a decline in its yields — its earnings per passenger per kilometre — by as much as 5.4% to Rs 3.62 versus Rs 3.83 in the corresponding quarter last year, with fuel costs escalating by 54.4% for the quarter to Rs 2,715.6 crore from Rs 1,759.2 crore.

Revenue from operations grew 13.2% year-on-year to Rs 6,512 crore.

Earnings before interest, tax, depreciation, amortisation and rent (EBITDAR) declined 42.4% year-on-year to Rs 1,130.1 crore and the margin nearly halved to 17.3% from 34.1%. Bloomberg consensus estimates had pegged IndiGo’s profit at Rs 514 crore with `6736 crore in revenues.

The airline incurred a foreign exchange loss of `246 crore during the quarter against `65 core profit it made in Q1FY18, with the rupee hovering over the `68-mark versus the US dollar. The per-dollar rate was around `64 in the April-June quarter last year. Payments like aircraft lease rentals, maintenance costs etc are are dollar-denominated expenses for airlines.

Passenger yield (revenue per kilometre) was down 5.4% to `3.62 as the airline did not pass on the entire cost burden to passengers, with other airlines following an aggressive fare pricing. IndiGo’s aviation turbine fuel (ATF) cost jumped 54% y-o-y from `1,759 crore to `2,715 crore in Q1FY19. “Fares were down year-on-year for 0-15 days travel. It is generally for business travellers who are not price sensitive. But the competition is not allowing us get yields from it. We have no choice but to keep prices muted,” president and CEO-designate Gregory Taylor said on an investors call. In the June quarter, the average aviation turbine fuel (ATF) cost was `65,606/kl, up 28% y-o-y. The company took its available seat kilometre (ASK) or capacity count to 17.8 billion, up 18.4% y-o-y. It also recorded a higher passenger load factor of 90.4% in Q1FY19 versus 88.6% in Q1FY18.

IndiGo’s continuous grounding of its workhorse, the A320neo aircraft, due to the Pratt &Whitney engine issue also came back to bite the airline hard for the first quarter; it saw maintenance costs inching up due to increased engine shop visits and also the unrealised mark-to-market loss it booked on forex due to supplementary rent liabilities, as delivery delays for the A320neos forced it to extend the leases of the older aircraft and the budget carrier had to account for the extra head in shop maintenance.

Once the deliveries of the A320neos begin, the maintenance costs will be more aligned to younger aircraft, the airline management said. IndiGo’s Rahul Bhatia, who is currently the interim chief executive officer, said that he is “not happy about the situation”, adding that with the deliveries of the A320neos and also the A321LR, the airline will look at flying to destinations like China and Southeast Asia, and has applied for traffic rights to Abu Dhabi , Jeddah, Male and Hong Kong. IndiGo once again said that it finds it challenging due to the current pricing competitiveness prevailing in the market to sell its 0-15 day cycle inventory at higher yields, thereby impacting its fare structure. The airline sells 40% of its inventory under this band and though it sees sales outside this window garner high yields year-on-year, yields under this bracket have remained under pressure.

According to a Bloomberg analyst, “Despite its domestic market dominance, IndiGo’s passenger yields remain challenged as competition intensifies and it is forced to match competitors’ pricing. In a highly price-sensitive Indian market, we believe there’s little room to raise fares, and earnings performance is driven by tight cost controls.”

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