Indigo Q1 profit declines 7.3% to Rs591.77 crore on cheaper fares

IndiGo’s revenue rises 9.7% to Rs4,741.45 crore from a year ago, while expenses soar 17.5% to Rs3,994.76 crore

IndiGo has a fleet of 109 aircraft with 811 daily flights to 40 cities and a domestic market share of 38.10%.
IndiGo has a fleet of 109 aircraft with 811 daily flights to 40 cities and a domestic market share of 38.10%.

InterGlobe Aviation Ltd, owner of India’s biggest low-cost airline IndiGo, on Monday said net profit in the June quarter fell 7.3% from a year ago on cheaper fares and higher expenditure.

Net profit during the period dropped to Rs.591.77 crore from Rs.638.89 crore a year ago.

Revenue rose 9.7% to Rs.4,741.45 crore from Rs.4,322.24 crore a year ago, while expenditure soared 17.5% to Rs.3,994.76 crore from Rs.3,399.32 crore a year ago.

“We have posted yet another profitable quarter,” InterGlobe president Aditya Ghosh said in a statement, “However, profitability was lower than last year, primarily because of competitive fare pressures.”

IndiGo airfares fell nearly 11% from a year ago in the April-June quarter, which is the peak season for air travel as schools shut for summer vacations. The average fare during the quarter was Rs.4,032 against Rs.4,524 a year ago.

IndiGo has 811 daily flights to 40 cities and a domestic market share of 38.10%.

In a conference call with analysts, Ghosh said IndiGo has 109 planes, currently, which include four fuel-efficient Airbus A320Neo planes.

IndiGo has ordered 430 A320Neo from Airbus, which handed over the first aircraft in March.

On the previous target of adding 24 Neo planes this fiscal, Ghosh said, IndiGo hopes Airbus and engine supplier Pratt and Whitney will resolve “various technical issues” and stick to the timelines they have set.

He also mentioned some of the issues.

“The A320Neo operation continues to be a challenge from an operational point of view, and there have been some issues around start-up time and other erroneous software messages, as a result of which we are struggling with maintaining the operational sanctity and technical dispatch reliability of the CEOs (Airbus A320 classic engine option),” Ghosh said.

He did not place a number on the planes the airline now hopes to induct, but reiterated the previous target.

“We are looking at slowing down deliveries—no decision made yet—to allow Pratt and Whitney to catch up with the production and delivery of the upgraded engine,” Ghosh said.

The lease of the planes in the market costs about 15% more, IndiGo said, without specifying its own cost.

The planes offer 14.3% fuel saving over the older Airbus A320 planes.

These planes are critical to lowering the cost of operations for the airline and increasing profits.

The airline had said it in its March quarter earnings call that it would consider switching to rival CFM International Inc.’s engines for later orders.

The airline on Monday reiterated that it was looking at the new CFM engines.

The airline said the higher outgo towards employee cost—about 24% higher than last year—was because it had hired more people in anticipation of taking delivery of the Neos.

But the airline had 121 employees per aircraft at December-end, which was reduced to 112 by June-end.

In a change of strategy, the airline said it will also now respond to cheaper fares being offered by rival airlines after its flight occupancy took a hit in the first quarter.

“We would rethink some of that,” Ghosh said. “You see low fares from everyone in the market, so wouldn’t point out any competitor. Yields (current) continue to be under pressure.”

Aviation consulting firm CAPA said it now expects that “dip in full-year profitability (of IndiGo) could be significant” for the current fiscal year, compared with the last.

“The impact of lower yields is visible on Indigo with profit before tax dropping by 19% from Rs.923 crore to Rs.747 crore on y-o-y (year-on-year) basis,” CAPA’s South Asia chief Kapil Kaul said. “I expect stronger impact in Q2 as yields for all airlines have dropped significantly in the last four weeks.”

InterGlobe Aviation shares closed 1.56% lower at Rs.973.95 on BSE, while the benchmark Sensex fell 0.17% to close at 28,003.12 points.

More From Livemint