IndiGo’s June quarter net profit falls nearly 12% to ₹2,729 crore

InterGlobe Aviation Ltd., which runs India’s largest IndiGo airline, reported a near 12% fall in net profit at ₹2,729 crore for June quarter, its first year-on-year decline in about two years, on account of higher costs.

The company recorded a net profit growth over the past six consecutive quarters since the December 2022 quarter, before reporting a y-o-y decline in the three months through June.

Total income during the period rose 18% from a year earlier to ₹20,249 crore, including an around 17% increase in revenue from operations at ₹19,570.7 crore.

The revenue also includes compensation accrued to IndiGo for the current and previous quarters on account of over 70 grounded aircraft as a result of unavailability of spare engines. This was a result of an amendment to the existing agreement of IndiGo with International Aero Engines LLC, an affiliate of Pratt & Whitney, which resulted in a customized compensation plan to mitigate the impact of the ongoing situation of aircraft on ground.

Simultaneously, the total expenses for the airline rose 24% on year to ₹17,445 crore. This included a 22.7% increase in the fuel costs at ₹6,416.5 crore. Fuel is a major cost component for Indian airlines as it accounts for 35-40% of an airline’s expenditure as against global average of nearly 25-30%. Yield, or revenue earned per paying passenger flown per kilometre (km), was at ₹5.24 per km, 1.3% higher than the year-ago period.

“As per the early trends of July, we are expecting stable revenue environment on passenger unit revenue in the second quarter (July-Sep) as compared to the same period last year. We will be turning 18 soon and we are carefully considering the changing needs of our customers and making products advancements accordingly,” chief financial officer Gaurav Negi told analysts in the post-earnings conference call on Friday.

IndiGo added 15 aircraft during the June quarter and as of 30 June, had a fleet of 382 aircraft. The airline added seven of these from its original orderbook while seven aircraft were added under its mitigation strategy of damp lease or wet lease arrangements. In a damp lease, an airline secures aircraft from a lessor along with some of the crew. Under a wet lease agreement, the lessor could offer the aircraft along with the entire crew to run it for a specified period or a defined number of flights.

“Subject to regulatory approvals, we expect to induct six more aircraft from Qatar airlines for Doha on wet or damp lease in the current quarter,” Negi said, adding that the current count of grounded aircraft remained rangebound for IndiGo in 70s.

“We expect grounding to start reducing towards the start of the next year,” he added.

With a free cash of ₹22,088 crore, the company has stated its plans to continue spending on owning engines and aircraft. The airline now has 31 aircraft either owned or on finance lease and aims to add more aircraft in finance lease as under these, the airline gets the right to own the asset at the end of lease term of around 8-9 years at a nominal price.

With an orderbook of over 975 aircraft, IndiGo reiterated that it continues to be on track about its capacity guidance of low double-digit growth for FY25 and a high single-digit capacity growth for Jul-Sep as compared to the same quarter a year ago.

The company further highlighted the ongoing cost concerns.

“We are seeing fuel escalation year-on-year, some states have started to increase VAT (value added tax). Airport charges have also started to climb upwards; we are monitoring that and we are in discussions with our airport partners. Maintenance is going through an inflationary cycle because some of our OEMs (original equipment manufacturers) are based out of Europe and the US,” Negi said.

During the quarter, the airline provided scheduled services to 88 domestic destinations and 30 international destinations.

“There is clearly underlying demand, looking at the unpenetrated Indian market, we feel confident about growth, but on the short term, there will be fluctuations in prices,” Chief executive officer Pieter Elbers said.