IndiGo flies past the worst of aircraft groundings | Company Business News

Mumbai: India’s largest airline, IndiGo, appears to be recovering from its woes with faulty Pratt and Whitney engines, which had forced it to ground around 75 aircraft, or about a fifth of its total fleet.

The carrier expects the number of non-operational planes to drop below 60 by the end of this year and into 40s by April, its management said during a post earnings call on Friday.

“We have already passed the peak levels of grounding,” said chief financial officer Gaurav Negi. “Our current number of grounded aircraft has reduced to high-60s from the mid-70 levels seen in the first quarter and the second quarter.”

However, the faulty engines have taken a toll on the company’s finances. Coupled with rising fuel costs, the aircraft groundings pulled InterGlobe Aviation Ltd into the red during the July-September quarter. 

InterGlobe Aviation, the listed entity that operates IndiGo, reported a consolidated loss of ₹987 crore for the September quarter, compared with a profit of ₹189 crore during the same period last year.

Also read | How long before IndiGo can fly its grounded fleet?

On the brighter side, its revenue saw healthy growth driven by strong demand from India’s growing pool of upwardly mobile passengers. The airline earned about 10% more revenue from passenger tickets and 21% more from ancillary services, which include a fast-growing cargo business, in the financial second quarter.

Indigo’s consolidated top line grew 14% year-on-year to ₹16,970 crore. This included ₹14,359 crore of ticketing revenue and ₹1,875 crore of earnings from ancillary services. The topline also included compensation from Pratt & Whitney for the trouble caused by the non-performance of its engines.

Higher costs, lower margins

IndiGo’s available seat kilometres (ASK) grew 8% year-on-year during the quarter to 38.2 billion, in line with the management guidance. ASK is a measure of available passenger carrying capacity that is endemic to the aviation industry.

IndiGo is the first carrier in India’s aviation history to have a fleet of more than 400 aircraft. It presently has 410 planes in its fleet compared to 334 a year ago. 

IndiGo’s cost per available seat kilometre (CASK)—a handy metric to measure a carrier’s operational efficiency—grew 12% on-year to ₹4.69. This was propelled by increased fuel costs, higher airport charges, and the expenses borne by IndiGo for temporarily leasing more planes to mitigate the impact of the aircraft groundings.

Also read | IndiGo: The past, present, and potentially exciting future

The higher costs ate into margins, with earnings before interest, tax, depreciation and amortization (EBITDA) falling by a quarter to ₹1,632 crore. EBITDA margin at 9.62% was over five percentage points lower year-on-year.

IndiGo said it will start returning old aircraft that it leased temporarily starting January as its own grounded planes start taking to the skies again. This will help the airline cut its costs as it will not only not have to pay the lessors but also as the older aircraft consume more fuel and are in general more expensive to maintain.

Respite for passengers?

This is also expected to help the average Indian passenger, as the cost savings are expected to trickle down to ticket prices. However, analysts say the biggest benefit for passengers will come when the grounded aircraft of Go First and SpiceJet Ltd also return to the skies, increasing industry capacity.

Between the two carriers, more than 100 aircraft are grounded.

Also read | SpiceJet’s path to recovery: A tough, long climb to reclaim market share

“While return of (the leased) aircraft by IndiGo is a move in the right direction, the real change would only come if we are able to bring back grounded aircraft of SpiceJet as well as those GoFirst aircraft, which were grounded due to engines issues,” said Mark Martin, founder and CEO at Martin Consultancy, an aviation consultancy firm.

“In terms of respite from high fares, the return of aircraft by IndiGo may not move the needle much. However, there should be some respite going ahead if oil prices stay low,” Martin added.

During the September quarter, IndiGo also got the nod from the Securities and Exchange Board of India to form an alternate investment fund to invest in startups in the aviation space. Named as IndiGo Ventures Fund–I, it will be seeded with an initial capital of ₹295 crore.

Interglobe Aviation shed more than 3% to end Friday’s trading on NSE at ₹4,373.70 per share, before the results were announced.

Also read | Go First’s foreign funding push to test India’s insolvency framework