High fuel prices and currency depreciation proved to be a drag on the bottomline of India’s largest airline IndiGo, which reported a 75 per cent on-year fall in net profit at Rs 191 crore during the October-December quarter. In the three-months ended December 31, 2017, the airline had reported a net profit of Rs 762 crore, while in the September 2018 quarter it had posted a net loss of Rs 652 crore.
“Though we have seen a reduction in fuel prices during the quarter compared to the previous quarter, on a year over year basis, fuel prices are still 31 per cent higher and the Indian rupee is weaker by 11 per cent. Both these factors have impacted our profitability compared to the same period last year. Our unit revenue was down year over year but we saw an improvement in revenue performance during the quarter,” said Rahul Bhatia, the company’s co-founder and interim CEO.
IndiGo, which commands almost 40 per cent of India’s domestic market share, saw its fuel costs for the December-quarter rise 69.2 per cent at Rs 3,410 crore. Its costs incurred on account of aircraft and engine rentals surged 45.7 per cent year-on-year at Rs 1,376 crore. These two heads accounted for the two largest costs for the airline. Its total costs were higher 50.6 per cent compared with the same period last year, while its revenue from operations grew only 28.1 per cent at Rs 7,916.20 crore.
Overcapacity by certain carriers restricting fares
For the first time since quarter ended June 2016, IndiGo reported an on-year fall in its passenger load factor. For the December 2018 quarter, its load factor stood at 85.3 per cent, a 320 basis-point fall from last year. Load factor is calculated by dividing revenue passenger kilometers by available seat kilometers. During the calendar year 2018, IndiGo added 51 aircraft translating to almost one induction every week. The domestic aviation industry has been complaining of deployment of overcapacity by certain carriers thereby not allowing fares to rise at a time costs were surging.
Operationally, IndiGo’s per unit performance was weaker during the three-month period ended December, compared with corresponding period last year. The airline’s revenue per available seat kilometer (RASK) fell to Rs 3.70, compared with Rs 3.82 last year, a fall of 3 per cent. Contrarily, its cost per available seat kilometer (CASK) increased 14.5 per cent to Rs 3.61, against Rs 3.16 last year. “This increase was primarily driven by increase in fuel prices and currency depreciation. The currency depreciation also impacted our CASK excluding fuel and as a result, our CASK excluding fuel was 2.04 rupees in the current quarter, an increase of 6.3 per cent from the same period last year. Excluding the impact of foreign exchange, our CASK excluding fuel reduced by 0.4 per cent,” Rohit Philip, IndiGo’s chief financial officer, said in a post-earnings call.
Passenger yields, which gauge the average fare paid per kilometer per customer, however, climbed 3.7 per cent. The airline’s CEO Rahul Bhatia pointed out that the firm’s revenue per available seat kilometre improved over the last two months. The available seat kilometres, which is reflective of an airline’s deployed capacity, increased 32.9 per cent during the year at 21.6 billion for the December-quarter.