InterGlobe Aviation, which runs the country’s largest domestic airline IndiGo, swung to a pre-tax loss of Rs 1,031 crore in second quarter FY20 owing to a mark-to-market charge and provision for aircraft maintenance expenses. In the same period last year, the airline had posted a pre-tax loss of Rs 987 crore.
While the airline reported 31 per cent year-on-year (YoY) increase in revenue from operations to Rs 8,105 crore, result was impacted due to mark-to-market foreign exchange loss of Rs 425 crore on capitalisation of aircraft leases and maintenance provision of Rs 319 crore. On a net basis, the loss stood at Rs 1,062 crore in the second quarter of FY20 compared to Rs 652 crore loss in the previous year. IndiGo switched to new accounting standard from April that requires airlines to capitalise its leases and depreciation in rupee resulted to mark-to-market charge.
The airline will continue to make provision for aircraft maintenance for the next two quarters and expects flat unit revenue growth in the third quarter due to intense price war in domestic market. Capacity growth, too, has been affected due to delays in plane deliveries but the airline expects to improve its aircraft utiliation in the coming quarters.
“The delay in deliveries is beyond our control. We are hungry for planes and there are many routes where we want to fly,” IndiGo’s Chief Executive Officer Ronojoy Dutta said in a post-result conference call. He admitted capacity growth could be in the range of 22-25 per cent in the current financial year lower than the planned 25 per cent because of the delivery delays.
IndiGo will also continue to bear higher maintenance expenses on engine shop visits of its conventional Airbus A320s. Chief Financial Officer Aditya Pande said the airline had extended leases of some of its planes and had also inducted aircraft on dry lease to compensate for aircraft grounding in 2017.
The engines of these aircraft are seeing additional maintenance. While the airline provided for Rs 319 crore towards maintenance in the second quarter it would have taken a similar provision in two subsequent quarters to factor for additional engine shop visits.
Engine maintenance costs will reduce from 2022 when the airline phases out the conventional Airbus A320s.
The company management is seeing good performance on international routes, especially to China and West Asia and sees opportunity to add more overseas routes. The airline also expects to better utilise its pilots resulting in improved productivity.
“In a historically weak quarter, we registered a negative profit before tax margin of 12.7 per cent compared to 16 per cent loss margin registered in the same quarter last year.
While our revenue performance was much better during the quarter, the losses were accentuated by forex losses on operating lease liabilities created under IndAs 116, and re-assessment of accrual estimates for future maintenance cost. We remain focused on our growth plans and are expanding both domestically and internationally. We added seven domestic and six international destinations in the last quarter and are looking to further grow our network profitably,” Dutta said.