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Even IndiGo’s best revenue performance couldn’t help it make profits. What will?

Earnings Analysis: Even India’s largest airline does not have control over fuel and Mark to Market losses

August 03, 2022 / 08:07 PM IST
Representative Image.

Representative Image.

IndiGo, the country’s largest carrier by fleet and domestic market share, announced its Q1-FY23 results on August 3. The airline recorded a loss of Rs 1,064.26 crore for the quarter. This translated to a loss of Rs 11.69 crore a day. Another way of looking at this is that the airline was Rs 600 short per passenger for breakeven.

The airline recorded revenue from operations of Rs 12,855.2 crore, its highest ever! This is after 10 quarters that the airline has been able to cross the Rs 10,000 crore revenue mark but a feat, which looks unlikely to be crossed in the current quarter. A foreign exchange loss of Rs 1,426 crore contributed to the net loss this quarter.

The loss is more or less similar to the previous quarter when the airline recorded a loss of Rs 1,147 crore. The results look very positive when compared to Q1-FY22, which was impacted by the deadly second wave of COVID which had led to the operations coming to a halt at many airports across the country.

The airline has said that it deployed the highest ever capacity as well in this quarter—about 7 percent higher than pre-COVID times. This begs the question. What will get the airline to profits if its best-ever revenue performance cannot?

What led to these numbers?


The airline carried 18.3 million passengers, which was 37.8 percent higher than the previous quarter. The airline recorded an 18.9 percent increase in yield which saw its revenue from operations jump 60 percent as the airline deployed 34.9 percent more capacity sequentially.

But all of this didn’t matter because fuel costs were up 86 percent sequentially. The impact of foreign exchange loss has doubled over the previous quarter having a negative impact on the overall results.

What next?

The airline will come under pressure from Akasa Air, which starts operations on Sunday. Interestingly, CEO Rono Dutta had hoped that both Akasa Air and Jet Airways will maintain pricing discipline because of the industry veterans that are part of those airlines. But the gloves are off with IndiGo itself adding frequencies and dropping fares on routes where Akasa Air has announced flights.

In the call this evening, Rono Dutta reiterated that he expects healthy competition but a look at the booking engines shows a different picture.

The airline expects the current quarter (Q2-FY23) to have an increase of 70-80 percent by Available Seat Kilometres (ASK), a measure of the total flight passenger capacity of an airline, compared to Q2-FY22. The airline had deployed 15.8 billion ASK in Q2-FY22 and a 70 percent increase would mean the airline would be deploying 26.86 billion ASK, which is marginally more than Q1-FY23. With the passenger numbers dropping in Q2, this could put additional pressure on the finances of the airlines.

The airline added three A320neos, nine A321neos and returned six A320ceos aircraft this quarter.

Path to Profitability

The pertinent question here is when can an airline as large as IndiGo break even given the troubled aviation environment if its best-ever revenue performance could not help it. There are no easy answers.

The airline has already marginally increased prices of its inflight offerings. The airline could look to drop its fares a little and explore if that attracts additional traffic. Sometimes higher traffic at lower revenue could mean better total revenue as compared to lower traffic at higher revenue. The balance between the two has been an eternal challenge for airlines worldwide.

Will the gap be filled by the cargo business? The airline is slated to induct dedicated freighter aircraft soon. Will the margins there help to overcome the shortfall and push the airline to green?

In addition to this, the restoration of salaries will have some impact on the employee costs going up. But there are two things which the airline does not have control over—fuel and Mark to Market losses. Those two factors are exactly what are hurting IndiGo right now.

Tail Note

This was also the last result discussion for Dutta who has been the CEO of the airline since January 2019. While there is a lot that he could have desired to achieve during this tenure, it was engulfed by the pandemic.

Air India under the Tatas is making changes to its network which go live next month. Akasa Air started this month and Jet Airways could start in the next two months. This is definitely likely to put pressure on all other airlines including IndiGo.

How long can the airline pull it off in the current environment? Will it need to raise funds? Will it be in exchange for equity to a strategic investor?

In an industry where cash burns faster than the speed of planes, these questions will have to be closely looked at in the years to come and for the incoming CEO to answer.
Ameya Joshi runs the aviation analysis website Network Thoughts.
first published: Aug 3, 2022 08:01 pm
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