July 07 2020
Rupee fall, unrelenting fuel price hike send IndiGo into a tailspin
25 October 2018

Airline sees first ever loss at ₹652.1 cr.

The unrelenting increase in fuel prices, along with the tumbling rupee in a quarter that typically sees weak demand from air-travellers, has led to IndiGo recording its first-ever loss at ₹652.1 crore for the quarter ended September.

The airline, with a market share of more than 42%, reported a profit of ₹551.6 crore during the same period last year. The airline earned revenue of ₹6,514.2 crore in the second quarter, an increase of 18.3%.

However, its expenses rose to ₹7,502.2 crore — a jump of 58%. Of its total expenditure, fuel expenses accounted for ₹3,035.4 crore, nearly doubling from the second quarter of last year.

The airline said that the rise in fuel prices accounted for more than half of the total decline in its profitability and the remaining due to currency depreciation and lower fares.

“Fuel constitutes 40% of out total costs and about 50% of our cost excluding fuel is denominated in foreign currency. Typically, in the airline industry, you would expect higher airfares to cover up the increase in costs. However, this has not happened yet. This has significantly impacted our profitability,” IndiGo co-founder and CEO Rahul Bhatia said.

However, the airline has a total cash balance of ₹13,163.7 crore comprising ₹4,417.5 crore of free cash and ₹8,746.2 crore of restricted cash. Its debt is related to aircraft purchase and is at ₹2,64.1 crore.

Despite slipping into the red, the airline is determined to scale up its capacity and is expected to see an increase of 35% in terms of available seat kilometres, with Airbus ramping up deliveries of A320 neos.

“Increase in costs by 24% and drop in yields by 10% indicate very tough trading conditions and inability to control market dynamics. Unlikely to see near term correction at this stage with the possibility of higher oil prices post November 4 is expected to trigger another industry downside,” Kapil Kaul, CEO & Director, CAPA South Asia

Low fares haunt

Mr. Bhatia also attempted to stave off criticism within the industry that low fares offered by the market leader, coupled with aggressive capacity addition, had hampered profitability for all domestic airlines.

“At IndiGo, we are not leading the charge in terms of low fares. We have never had that policy. There are players that are really hurting and for them to raise short-term cash they have to lower fares and we have no choice but to match them,” Mr. Bhatia said during a conference call with investors. He added that capacity induction by the airline was in line with the growth in domestic traffic.

On whether the airline would be open to acquiring another airline, Mr. Bhatia remained non-committal. “Will look at it opportunistically... if it is too good a deal to say no to. We will have to measure it against what that is more beneficial for us or should we just build our business organically,” he said.

Senior advisor at IndiGo Gregory Taylor said that the current airfares were “unsustainable”, but hoped that a stronger demand during the festival season would provide airlines room to raise airfares in the third quarter.



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