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Strong passenger volume help Indigo boost June quarter performance

Change in operating model and issues related to the Airbus A320neo will be key triggers

Ram Prasad Sahu 

Indigo Airlines
Indigo Airlines

Strong passenger volumes, as well as better cost management, helped Interglobe Aviation, which operates its services under the brand, beat analysts’ estimates and post strong June quarter numbers. Higher demand reflected in the passenger load factors which were up 470 basis points (bps) to 88 per cent coupled with lower capacity addition growth helped boost operating revenues, which at Rs 5,752 crore were up nearly 26 per cent over the previous quarter. The company had to ground some of its aircraft in the quarter, given issues with the engines in the new A320neos, which impacted capacity. The company indicated that engine issues will be sorted out over the next one year and it will receive compensation from Pratt and Whitney for the same though it did not reveal the amount or the timeline of the same. The company improved its margins at the level (operating profit before rentals) by 20 bps to 34.1 per cent. Driven by a better top-line performance and higher other income, the company reported a 37 per cent increase in net profit to Rs 811 crore. This was higher than Bloomberg consensus estimates of Rs 730 crore. Other income increased by 25 per cent to Rs 202 crore. 

The company has also been managing its costs well. Despite the higher fuel (aviation turbine fuel) costs which at Rs 52 a litre was up about 16 per cent year on year (y-o-y), the company kept its per unit cost of operations denoted by at Rs 3.08, up 1.3 per cent. Excluding fuel, per unit cost was down 2.5 per cent. The company indicated three factors which helped it to better manage its fuel costs, which account for 40 per cent of overall costs. It has more in its fleet at 22 than a year ago when the count stood at four. The new aircraft burn 15 per cent less fuel than their predecessors, the The company has been importing fuel in select stations as well as asking for better rates from vendors which has helped keep costs down. While it has kept the fuel costs under control, overall costs continue to be higher given the strong capacity addition of 25 per cent each over the last five years.

After many quarters the company reported a growth in yield which was up two per cent compared to the year-ago quarter. The company indicated that unlike in the year-ago quarter, when its fares were higher than its competitors resulting in lower load factors, it has adopted a strategy of having fares in line with the competition. Given a higher cost base (capacity growth of 25 per cent, higher costs of staff), lower impacted leverage and its performance.

Going ahead, while the operational performance will be a short-term trigger, the Street will keep an eye out for any equity dilution, change in business model from leasing to ownership of aeroplanes and its impact on dividends. 

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First Published: Tue, August 01 2017. 08:54 IST
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