IndiGo’s Q2 results today: What to expect?

InterGlobe Aviation: Mahesh Kumar Malik has resigned as Chief Commercial Officer, Cargo (Domestic), in the company with effect from November 1.

IndiGo, India’s largest airline by fleet and domestic market share, will declare its earnings for the second quarter and the first half of FY24 on November 3. This comes days after rival Air India Express talked about inducting an average of one plane every six days and scaling up rapidly in the next 15 months. IndiGo has never seen such competition since its inception in 2006.

The results will give a glimpse into its quest to reach 100 million passengers this fiscal year, 50% of which has already been achieved. More importantly, the results are awaited to hear about the airline’s plans to tide over the crisis caused by the Pratt & Whitney engine issues that have grounded some of its aircraft. The airline is again relying on wet-leased aircraft to make the most of the peak season.

What do the numbers say?

At 2.33 crore domestic passengers, the second quarter saw 33 percent growth in passenger numbers over Q2 FY23. However, the numbers are down sequentially from Q1-FY24, which was the best-ever quarter in IndiGo’s history. It closed the quarter with a market share of 63.4 percent, its highest ever.

In Q1, IndiGo reported a profit of INR 3090 crore and crossed the INR 16,000 crore revenue for the first time in its history. The second quarter saw some international expansion, which would take time to realise in the market since it involved opening new stations. The airline has already clocked 11 percent more passengers than in the previous quarter.

A tough quarter

The first quarter saw the airline make the most of last-minute high fares due to the suspension of Go FIRST. Q2, on the other hand, has traditionally been subdued and the Go FIRST impact has faded away.

While the demand side has cooled off, the cost side has heated up—an unwanted combination. Oil prices saw an average increase of 5 percent in the second quarter over the first and the rupee was 1.5 percent weaker over the same period.

The impact of damp-leased B777s, relatively longer international flights to Nairobi and Jakarta, and the blue ocean strategy (flying on sectors where there is no competitor) from Delhi, will be known in the days to come. The silver lining has been the competition's inability to scale up. The fiasco with Akasa Air in August and September, along with Air India group’s inability to scale up operations immediately, have both helped IndiGo. But is that enough to ring in profits? This is the 14th quarter since COVID started, and the combined loss from Q1-FY21 until Q1-FY24 stands at INR 9,217 crore. IndiGo has a long way to fly to recover that.

What to watch for

The quarter would have seen sudden availability of staff due to the grounding of Go FIRST. Going forward, as the Air India group expands rapidly, pilot salaries and staff salaries will come under pressure. How much the employee costs rise and how fast they rise will be something to keep an eye on. Employee costs stood at 9.4 percent in the last quarter and have remained flat for the last two quarters, as the industry has stabilised post COVID.

The airline does not comment or release details about the compensation that it has received or is due to receive from Pratt & Whitney. It has always remained unclear if IndiGo is getting compensated in cash or kind or both. With the newer checks on Pratt & Whitney engines, the management call after the results are announced will be interesting to know the exact extent of the groundings.

Tail note

Will IndiGo clock a profit in Q2, and if so, will it be wafer thin? The airline is unlikely to cross the revenue numbers of the first quarter. With pressure on both the demand and cost side, a breakeven with a three-digit profit will be an achievement.

If IndiGo cannot break even, it will raise more questions than answers, especially at a time when the industry is headed towards becoming a duopoly in India.