IndiGo expects the coronavirus (COVID-19) crisis and depreciation of the rupee to hit profit in the fourth quarter. IndiGo, the largest domestic airline by market share, has issued the profit warning following a dip in bookings because of the spread of COVID-19 in the country.
“We cancelled our flights to China and Hong Kong and reduced frequency to certain other Southeast Asian markets. This capacity was redeployed in other markets without having a material impact on our revenues. Over the past few days, however, week-on-week, we have seen a 15-20 per cent decline in our daily bookings. We expect our quarterly earnings to be materially impacted because of these factors,” the airline said in a stock exchange notification on Wednesday.
It added that sharp depreciation in rupee, too, would have an adverse impact on its dollar-denominated liabilities, primarily on account of capitalised operating leases.
Flight occupancy dropped on domestic routes as individuals and companies canceled events and postponed travel. Last-minute fares, too, have declined 20-25 per cent on key metro routes over a dip in demand. While the plunge in crude oil price benefits the airline, the relief could be limited thanks to sluggish demand.
InterGlobe Aviation, which runs IndiGo, had reported a threefold increase in its pre-tax profit to Rs 556 crore in the third quarter of financial year 2019-20 (FY20) on strong revenue growth. In an investor conference call after the results, it had said modification of its Airbus A320neo engines would be completed by May, but indicated a challenging fourth quarter because of lean season and COVID-19 threat.
COVID-19, which was first detected in Wuhan city of China last December, has spread across the globe, forcing airlines to suspend flights and ground aircraft. Indian carriers have limited exposure to China and Southeast Asia.
While overall international operations contribute around 25 per cent of IndiGo’s revenue, the share of China and Southeast Asia markets was limited. However, the restrictions imposed by countries in West Asia have dented business further. Flights have been cancelled and bookings deferred following visa restrictions imposed by Saudi Arabia and Qatar, while Kuwait has suspended all flights to/from India for a week.