IndiGo profit slips 7% to 591.78 crore

Lower fares, higher non-fuel costs hit margins

InterGlobe Aviation, which runs the country’s largest airline, IndiGo, on Monday reported a 7.3 per cent decline in net profit on account of higher non-fuel expenses, pressure on yields and a dip in passenger load factor.

Net profit for the first quarter (Q1) of the financial year 2016-17 (FY 17) was Rs 591.78 crore as against Rs 638.90 crore in same period last year (2015-16).

In its result, the airline also said it is looking to slow down induction of A320neo planes to allow engine manufacturer Pratt & Whitney to complete the engine upgrade work.

But later, in a conference call with analysts, the airline management said it is yet to take a decision and hopes to receive additional 19 A320neo planes this year according to its original schedule.

IndiGo has 109 aircraft in its fleet and 430 A320neo on order.

Pratt & Whitney manufacture all engines for A320neo. This year, IndiGo is expected to induct 29 planes into its fleet.

The decline in profit has prompted industry consultancy CAPA to lower the airline’s profit estimate for FY17.

“The impact of lower yields is visible. We expect stronger impact in Q2, as yields for all airlines have dropped significantly in the last four weeks. We see IndiGo’s FY17 profit lower than FY16 and see resumption of a very strong capacity growth cycle, possibly from Q3, further hurting yields and industry financials,” said Kapil Kaul, the South Asia chief executive officer of CAPA.

Capacity growth is increase in the number of seats in an airline.

The total income from operations in Q1 FY17 increased by 8.5 per cent to Rs 4,545.19 crore as against Rs 4,188.88 crore in the same period the previous year, mainly on a 20.8 per cent increase in ancillary revenue to Rs 580.57 crore.

Passenger revenue for the quarter increased by 6.9 per cent to Rs 3,971.73 crore.

But, the revenue growth was slower than estimates because of lower fares and a decline in load factor.

IndiGo’s load factor for the quarter declined by 2.43 per cent to 83.6 per cent, from 86.03 per cent last year.

The airline management said its load factor fell because it added new flights and did not match lower fares offered by competitors. IndiGo president Aditya Ghosh said the airline is rethinking its pricing strategy following decline in loads.

In the preceding two quarters, passenger growth was higher than capacity addition but in Q1 of FY17, while deployed capacity rose 25.1 per cent, passenger volume rose 20 per cent. The average fare in the period was about 11 per cent lower over the previous year.

The airline’s profit was boosted by a 47 per cent rise in other income, which stood at Rs 162 crore on a year-on-year basis.

The airline’s result missed the Bloomberg estimates as adjusted (for one-offs) net profit and revenue fell short by 9.66 per cent and 2.38 per cent, respectively.

The year-on-year reduction in jet fuel price helped the airline to control fuel expenses. Yet, despite increase in capacity, its fuel expense rose 1.5 per cent to Rs 1,367 crore.

The airline reported an earning before interest, tax, depreciation, amortisation and rentals (Ebidtar) of Rs 1,553.76 crore with an Ebidtar margin of 33.9 per cent for the quarter ended June 2016 as compared to an Ebidtar of Rs 1,576.93 crore with an Ebidtar margin of 37.4 per cent for the same period in the previous year.

InterGlobe Aviation shares closed 1.56 per cent lower at Rs 973.95 apiece on the BSE, while the benchmark Sensex fell 0.17 per cent to close at 28,003.12.