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Business News/ Companies / IndiGo Q4 results: Is the budget airline staring at best-ever profits in Indian aviation?
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IndiGo Q4 results: Is the budget airline staring at best-ever profits in Indian aviation?

Both the number of grounded planes and the duration of grounding have ballooned since the earlier estimation. How does it impact IndiGo and what are the mitigation measures?

IndiGo's total income crossed ₹20,000 crore last quarter. It was a first, but repeating it in Q4 would be challenging without the help of other income and compensation. (REUTERS)Premium
IndiGo's total income crossed 20,000 crore last quarter. It was a first, but repeating it in Q4 would be challenging without the help of other income and compensation. (REUTERS)

IndiGo, the largest carrier in India, will declare its Q4 and full-year earnings on Thursday, May 23. This will be the first result announcement after the airline agreed to place a firm order for 30 A350-900s. The airline, which operates two damp-leased B777s, will see the A350s being inducted from 2027.

The airline saw its grounded planes double in Q4 but still managed to hold on to capacity by clocking more domestic departures in March compared to December 2023 after seeing a sudden drop in January. The passenger numbers are lower, largely due to seasonality. Despite these challenges, the airline has improved its year-over-year performance for Q4.

Also read: IndiGo makes long-haul foray, orders 30 wide-body aircraft

How much can this translate into profits and how much has the airline earned from Pratt & Whitney as compensation will be known on Thursday. The last few months have seen airlines open up to compensation from Pratt & Whitney, which has run into millions of dollars, not all of which is a cash payout.

FY24: The best year ever

Globally, the large airlines have reported their best-ever profits in FY24. This has included Singapore Airlines and Emirates. Joining them would be IndiGo, which has already announced a bonus of 1.5 months' basic pay for its eligible staff, a rare thing in Indian aviation which is known more for shutdowns and failures than success and bonuses.

The three quarters for which results are declared show a profit of 6,276 crore. There are all indications of a yearly profit like never before, especially if the Pratt & Whitney compensation is finalised and accounted for.

The airline has seen a 15.5 per cent growth in domestic departures and 29.8 per cent in International departures. Passenger growth has been 23.6 per cent and 37.6 per cent for domestic and international, respectively, while capacity by ASK (available seat per kilometre) grew 16.7 per cent and 39.3 per cent, respectively, for domestic and international in FY24 compared to FY23. This is despite the huge chunk of its A320neo being grounded. The airline ended the year with 100 million passengers, much in line with the number it had clocked for the calendar year 2023 as well.

Also read: IndiGo announces special bonus for staff

The airline’s total income crossed 20,000 crore last quarter. It was a first, but repeating it in Q4 would be challenging without the help of other income and compensations. Overall, the airline could look at a profit in the range of 7,000 crore to 7,400 crore, subject to how the compensation is accounted for.

Q4 the damper?

IndiGo faced a huge grounding due to the powder metal issue of Pratt & Whitney engines, leading to a grounding of 70-80 planes of a fleet of nearly 350 aircraft. With nearly one-fourth of the fleet out of action, there was a sudden slump in departures and capacity offered in the market, which was largely on the domestic side as the airline continued its international expansion selectively. The airline closed the quarter without impacting its domestic market share, which remained above 60 per cent. The sequential drop was 3 per cent, while it was a gain of 12 per cent when compared to the same quarter of the previous financial year.

With a significant chunk of monopoly routes, was it able to add revenue because of shortage of capacity or was it losing passengers to competition? Going by market share and passenger numbers, losing passengers seems a distant possibility.

What to watch out for?

It will be interesting to hear what the management has to say about the A350 induction plan, which is slated to start in 2027. Additionally, the latest count of grounded aircraft and the compensation from Pratt & Whitney would be an equally interesting commentary. IndiGo has shied away from talking about the compensation from engines in the past, citing contractual clauses.

Both the number of grounded planes and the duration of grounding have ballooned since the earlier estimation. How does it impact IndiGo and what are the mitigation measures? The airline will induct quite a few A320ceo from the open market in the next few weeks. Some of these planes are those which have earlier served the airline. This is over and above the wet-leased aircraft which are already being operated by the airline and number more than 10.

Also read: India’s aviation-hub dreams get new wings as IndiGo takes long-haul route

Tail note

The airline has not had industry-leading load factors and its famed ‘on-time performance’ has taken a backseat. The much-talked-about competition from Air India group has remained hype thus far. While on one side, the airline has faced capacity issues, on the other, the lack of competition has meant that the airline continues its upward swing.

The financial year 2024 was in line with past seasonality and we are well past COVID. This gives the airline better control over inventory management, aircraft cycles and maintenance plans as things stabilise worldwide.

Even the global turmoil in geopolitics, a raging war in Europe which completed two years and a new one in the Middle East has thus far not had a huge adverse impact. Where will the airline aim from here on?

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Published: 21 May 2024, 01:46 PM IST
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