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Indigo may have to wait another six months before turning profitable again

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  • Indigo reduced its losses by 66% year-on-year to 1,064 crore in the June quarter, from ₹3,174 crore last year.
  • Jet fuel prices rose as much as 95.5% in the quarter and the airline also suffered losses in foreign currency.
  • Indigo says that if the currency loss of 1,424 is excluded, the company would make a net profit of ₹360 crore.

India’s largest airline, InterGlobe Aviation, also known as Indigo, could have had a good April-June quarter as it was the summer season and the first quarter without Covid lockdowns in two years, bringing aviation to a standstill.

But this has only allowed them to limit their losses to 1,064 crore in the June quarter, from ₹3,174 crore last year. This is despite a fourfold increase in operating revenue to 12,855 crore as capacity increased by 145%.

In addition to the return of economic activity, it was also related to a surge in fuel prices by a massive 95.5% during the quarter, foreign exchange losses due to a volatile currency and more.

Indigo says that if the currency loss of 1,424 is excluded, the company would make a net profit of ₹360 crore.

“We reported the highest revenue ever generated by the company, producing profits on an operational level. However, due to cost pressures on fuel and foreign exchange, we were unable to translate this strong sales performance into net profitability. While our second quarter financial performance will be challenged by weak seasonality, the long-term revenue trend remains strong,” said CEO Ronojoy Dutta.

Particularities Revenue Loss Total Expenses
Q1 FY23 ₹13,018 crore (₹1,064 crore) ₹14,083 crore
Q1 FY22 ₹3,170 crores (₹3,174 crores) ₹6,344 crore
Q1 FY21 ₹1,143 crore (₹2,844 crore) ₹3.986 crore
Q1 FY20 ₹9,786 crore ₹1,203 crore ₹8,277 crore

Indigo could make gains in the December quarter
The next quarter will not improve either, as the seasonal effect of the summer quarter will disappear. Sales are expected to fall next quarter as schools open, monsoons and the month shrad when fewer people travel.

“All these things tend to hold back revenue in the second quarter. And it’s historically not a one-year phenomenon,” Dutta said in an analyst call.

However, Dutta hopes that as the pressure on fuel and foreign exchange eases, they will turn a profit in the third quarter of the fiscal year.

“If fuel and foreign exchange behave just a little bit, I think we could have a targeted storm of profitability in the third quarter,” he said.

‘Giving up trains for us’
Indigo resumed planned international operations and now operates roughly at a pre-covid international level. The capacity deployed in the June quarter was about 35% higher than in the previous quarter and about 7% higher than pre-covid capacity.

He added that business travel has been strong. “People also travel like crazy to tourist destinations. So markets like Srinagar, Leh, Dehradun and Goa are all performing very well.

“We are getting train to airline replacement in all these short autumn markets be it Delhi-Lucknow, Delhi-Dehradun, Kolkata-Devgad people are giving up the trains and coming to us. This is a positive sign,” he says.

Even as the love of travel grows, most airlines will face new competition, such as the launch of Rakesh Jhunjhunwala-backed Akasa Air, the comeback of Jet Airways and the relaunch of Air India.

“The fact that competition is increasing and the addition in flights is also quite small, capacity is limited at the moment. We don’t see too much impact from the competition, if we see something we see a healthy industrial environment in terms of prices,” said Dutta.

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