The skies were clearer for aviation companies in the three months ended December. Demonetization in the base December 2016 quarter was expected to have a favourable impact on growth. Fares too were healthy. Against that backdrop, InterGlobe Aviation Ltd’s (the company that runs the IndiGo airline) third quarter results are better than many analysts’ expectations.

Reported net profit increased by 56% year-on-year to Rs762 crore. But take that growth with a pinch of salt. That’s because a spectacular growth of 58% in other income, a 9% decline in depreciation costs and a slower pace of growth in finance costs, have all helped net profit growth.

At the Ebitdar level, the company saw a much slower 34% growth to Rs1,936 crore. Still, that’s not bad. Ebitdar is short for earnings before interest, tax, depreciation, amortization and rentals, and is a key measure of profitability for airlines. The IndiGo stock ended 3.7% higher on Wednesday on BSE in reaction to the numbers that were announced on the exchanges just a couple of minutes before the equity markets shut.

It’s worth noting that the company’s profitability last quarter was favourably impacted due to better revenue management as well as credits received from its manufacturers. A similar impact was seen in the September quarter as well.

IndiGo’s revenue per available seat kilometre increased 10.4% compared to the same period last year. However, the company does not expect this year-on-year improvement in the measure to sustain going ahead. One reason is that growth in the December quarter had a favourable base. Also, revenue last quarter was driven by better revenue management, the systems for which were put in place in the March quarter, which will cap growth numbers.

That apart, on the costs front, stronger crude oil prices make life uncomfortable for airlines. Last quarter, fuel costs expressed as a percentage of operating revenue was almost one-third, a big number. Watch out for yields (6.3% up in the December quarter) then, as companies try to pass on higher fuel costs to consumers. A further sharp and sustained spike in crude oil prices is likely to hit profit margins.

Firmer crude oil prices could well cap meaningful upsides in the stock, which has appreciated about 18% so far this fiscal year. Based on Bloomberg data, IndiGo shares trade at 16.5 times expected earnings for fiscal year 2019. Apart from crude oil prices, investors should watch news flow on Air India , the airline whose international operations IndiGo is reportedly eyeing.

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