BackIndiGo makes smooth landing in Q3, but turbulence likely ahead
To be sure, volatility in fuel costs remains a looming threat and investors would do well to closely track this.
PremiumInterGlobe Aviation Ltd benefitted from favourable operating environment in the December quarter (Q3FY23). Strong demand helped by seasonality and drop in fuel costs meant the airline swung to a net profit of ₹1,418 crore in Q3 after being in the red for the previous three quarters.
InterGlobe Aviation runs IndiGo, India’s largest airline by market share.
Domestic demand was robust on the back of festival and holiday season. Besides, Q3 also saw a pick-up in international demand. IndiGo now operates at 105% of its pre-covid capacity in the international segment, the company’s management said in an earnings call. Against this backdrop, the airline’s yield, which is a measure of pricing, was rose 6% sequentially to ₹5.38 in Q3. Also, passenger load factor was at 85% versus 79% in Q2.
Going ahead, in Q4, bookings remain strong, noted the company. But as the seasonality factor wanes, yields are likely to come under pressure. “According to our airfare tracker, the 30-day domestic forward price was down 13% month-on-month in January 2023 and the 15-day price was down 22% month-on-month," said analysts at Motilal Oswal Financial Services in a report on 3 February. Even so, IndiGo noted that yield in Q4 would be higher than pre-covid levels.
Further, the gradual fall in fuel costs is a positive as this comprises a significant chunk of an airline’s operating expense. In Q3, fuel expenses declined nearly 8% sequentially, which helped pull down the drop in cost per available seat kilometer to 4.77 from Rs5.15 in Q2.
Moreover, the increasing share of fuel-efficient aircraft in its fleet gives IndiGo a cost advantage. As of December 2022, the fleet consisted of 238 new engine option (Neo) aircraft out of 302.
Though the company made profit in Q3, it would not offset the losses worth around ₹2,650 crore seen in the half-year ended September. But given healthy demand trends in Q4, IndiGo expects to end FY23 with profit excluding foreign exchange losses.
To be sure, volatility in fuel costs remains a looming threat and investors would do well to closely track this. Shares of IndiGo are down nearly 9% from their 52-week highs of ₹2,282.10 apiece seen in February 2022.
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