IndiGo to start regional operations, annual profit falls 16.5% to Rs 1,659 crore

IndiGo parent InterGlobe Aviation’s net profit falls to Rs440 crore in the fourth quarter as against Rs584 crore a year earlier


IndiGo says it has signed a term sheet with European Turboprop Maker Avions de Transport Regional G.I.E. (ATR) to buy 50 ATR 72-600 aircraft.
IndiGo says it has signed a term sheet with European Turboprop Maker Avions de Transport Regional G.I.E. (ATR) to buy 50 ATR 72-600 aircraft.

New Delhi: InterGlobe Aviation Ltd, which runs India’s largest airline IndiGo, turned in a profit of Rs1,659 crore in the year ended 31 March and has decided to buy 50 turboprop planes to start regional operations.

The profit was the airline’s ninth consecutive one, although it was lower than the Rs1,986 crore it posted in 2015-16 on account of higher fuel costs.

IndiGo has a 39.9% share of the domestic market by passengers, and flies 133 Airbus A320 planes.

It also has 390 A320neos and 20 A321neos on order, according to Airbus’ order book.

IndiGo told BSE in a statement on Tuesday that it has signed a term sheet with French aircraft maker Avions de Transport Regional GIE for the purchase of 50 ATR 72-600 aircraft. A term sheet becomes a firm order after both sides sign off on the deal.

IndiGo plans to launch its turboprop operation by the end of 2017 and expects to induct up to 20 aircraft by December 2018.

“We are embarking on a journey to build a nationwide regional network and connect cities that have not benefitted from the growth in India aviation,” IndiGo president Aditya Ghosh said in the statement. IndiGo is likely to be a 177 aircraft airline by March. This number is likely to include 7 ATRs.

ATR said the order was valued at $1.3 billion at list prices. Airlines get deep discounts on list prices which are not disclosed.

Christian Scherer, ATR’s CEO said the new aircraft would help IndiGo “effectively implement its ambitious plans to build a nationwide regional network”.

Also Read: IndiGo: Lower oil prices, higher yields key to improving valuations

The choice of a new aircraft is a departure from IndiGo’s long-standing strategy of flying just one aircraft type.

Low-fare airlines typically keep only one aircraft type in their fleet, something IndiGo has done in its 11 years of its existence.

The change has been thought through, explained IndiGo’s chief financial officer Rohit Philip who has also worked at United Airlines which had multiple fleet types.

He said in a call with analysts the complexities associated with multiple fleet types are mostly related to operations including pilot training costs and having a separate pilot pool.

To ensure that these complexities “do not creep into” IndiGo’s operations, the airline will house those aspects unique to each aircraft type (maintenance, flight operations, pilot training) in a separate division.

Human resources management, finance, and administration would be common, Philip added.

IndiGo will also bid for the government’s UDAN regional flying scheme that provides subsidy for regional flights.

It will compete with Air India Ltd and SpiceJet Ltd, which have regional operations and have won rights for UDAN flights last month. Jet Airways Ltd also flies ATRs but has not applied to fly under the scheme. Air India, SpiceJet and Jet did not respond to an email seeking comments on how IndiGo’s entry into regional operations would impact them. Some regional routes typically have few flights and so command high fares.

For instance, flights to Dharamshala and Kullu bring in good revenue for airlines, helping them offset to some extent the competitive fares they are forced to offer on metro routes, an analyst who did not wish to be named said. Passenger growth is likely to slow down to 13-15% in 2017-18 from last year’s 21.8% and the profitability of airlines will be under pressure, rating firm Icra Ltd said last week.

IndiGo did not guide on revenue per passenger but said “summer load factors are up.” It said it has taken steps to improve its on-time performance which had slipped towards the end of 2016-17. Its revenue rose to Rs19,369.57 crore for the year ended 31 March from Rs16,655.03 crore the year before. It also announced a dividend of Rs34 per share. In the quarter ended 31 March, IndiGo registered a profit of Rs440.30 crore, down 24.6% from Rs583.78 crore the year before.

The 43% fall in profit before tax per passenger in 2016-17 compared to a year ago highlights the tough market conditions, Sydney-based aviation consulting firm CAPA said in a note.

The firm raised concerns about IndiGo’s aggressive growth plans for the year which it said would “challenge operational strength and further test execution capabilities.”

On Tuesday, shares of InterGlobe rose almost 2% to close the day at Rs1141.1 on BSE, while the exchange’s benchmark Sensex closed almost flat at 29,933.25 points. The results were announced after market hours.

More From Livemint