Higher yields, capacity boost IndiGo, net soars 37% to Rs 811 crore

Despite lingering issues with its new A320 Neos, nine of which are grounded due to engine glitches, InterGlobe-run IndiGo today logged in 37.1 per cent growth in net at Rs 811 crore, driven by higher load factor and the resulting better margins.
A 5.5 per cent improvement in RASK (revenue per available seat), coupled with a strong 25.4 per cent growth in RPK (revenue passenger kilometres), pushed up net sales 25.6 per cent to Rs 5,955 crore, helping the largest airline report its best-ever quarterly numbers.
Load factor rose by 470 bps to 88 per cent which pushed up the yields by 200 bps pushing up operational margins by a healthy 14.1 per cent, president and whole-time director Aditya Ghosh told analysts in a post-earnings concall.

He said the numbers were also aided by continuing all-round improvement in cost especially CASK or cost per available seat kilometres by 2.5 per cent, excluding fuel.
"We added four aircraft in the quarter of which three are A320 Neos, taking the overall fleet count to 135 with 22 of them being A320 Neos," Ghosh said, adding but the lingering engine glitches has nine of them grounded.
But despite all these, he said it maintained an on- time performance of 85.4 per cent, while technical dispatch reliability stood at 99.85 per cent, making IndiGo the No 1 in OTP with a flight cancellation rate of 1.2 per cent.

In the June quarter of fiscal 2017 "we were not matching fares with competition and consequently we saw a decline in the load factor and our RASK performance for the same quarter was adversely impacted," he said.

"In our prior call we had mentioned that we were experiencing issues with the Neo engines. As a result, we continue to have a high number of engine removals and sufficient spare engines have not been available. We have grounded nine A320 Neos due to lack of spare engines.
"While we do get some compensation for the grounding, operational disruptions are quite challenging, and we aren't happy with that situation," Ghosh said.

He went onto to add that "based on what we know today, it may be another year or so before the design changes are implemented by Pratt & Whitney, the engine maker, which should allow these engines to have the ongoing flying hours that we expect from them.
"We told P&W that they must focus on increasing the number of spare engines that are available in the system and if that happens we hope to see significantly reduced operational disruptions, within the next few months," he said.
Chief financial officer Rohit Phillip admitted that aircraft delivery delays are impacting it bottomline.

"The delay in A320 Neos deliveries is impacting our profitability. By now we should have 36 Neos whereas we have 22 now. To make up for the shortfall, we had to go for short-term leases of used A320s," he said.
The higher numbers are despite almost 300 bps lower ASK which rose only 18.7 per cent to Rs 1,510 crore against a 22 per cent guidance in the March quarter, RASK jumped 5.5 per cent to Rs 3.82 while CASK rose 1.3 per cent Rs 3.08, he said.
CASK declined 2.5 per cent to Rs 1.91, helping its operational margins to improve to 34.1 per cent from 33.9 per cent, he added.

The numbers were helped by 120 bps improvement in PAT margin at 14.1 per cent, Phillip said, adding revenue from operation 25.6 per cent to Rs 57,52.9 crore, while other income jumped 24.6 per cent to Rs 2,02.6 crore,
Fuel expenses rose 28.6 per cent to Rs 1759.2 crore, while aircraft and engine rentals rose 19.8 per cent to 853.7 crore. Average fuel prices rose 15.8 per cent to Rs 52.71 per liter for the quarter.
Phillip guided a 20 per cent increase in ASKs for the full fiscal 2018 saying he expects capacity to grow at 20 per cent over the three year term for fiscal 2018 to fiscal 2020.

He said the airline is considering a change in its fleet acquisition strategy that can reduce its operating costs and result in higher profitability.
"Going forward, we anticipate lowering use of a sale and leaseback model and gradually begin the process of owing aircraft that would be purchased through internal funds and debt," said Phillip.
He admitted that they purchase aircraft on a six-year sale and leaseback model, in a bid to move the planes out of its fleet once a technologically advanced aircraft enters the market. Of its 135 planes, 118 are on operating lease, and the rest are owned or financed.

"Now that we've the A320 Neos, which deliver a 15 per cent lower fuel burn and have a much lower risk of technology obsolesce, we may choose to operate these aircraft for a longer period than the six-year period we'd historically used," Philip said.
Over the long-term, owning an aircraft will be cheaper due to better cash flows and lower depreciation tax, he added.