IndiGo reports biggest quarterly loss of Rs 1,062 cr due to high maintenance costs; cuts expansion targets
IndiGo is the country's largest airline in terms of domestic market share
India's biggest airline IndiGo reported its biggest-ever quarterly loss on higher maintenance costs and cut capacity expansion targets
The losses were accentuated by forex losses on operating lease liabilities created under Ind AS 116, and re-assessment of accrual estimates for future maintenance cost
IndiGo is the country's largest airline in terms of domestic market share
India’s biggest airline IndiGo reported its biggest-ever quarterly loss on higher maintenance costs and cut capacity expansion targets, at a time when the industry is grappling with slowing passenger growth in a sluggish economy.
IndiGo is the country's largest airline in terms of domestic market share.
Budget carrier IndiGo's parent InterGlobe Aviation on Thursday reported widening of its net loss to Rs 1,062 crore for the September quarter, hit by higher costs related to operating lease liabilities.
IndiGo’s quarterly loss also comes as Asia’s third-largest economy grows at its slowest pace in years and domestic passenger growth cools.
Maintenance costs spiked as IndiGo was forced to reassess the expense of leasing and maintaining older Airbus A320ceo planes to fill a gap caused by the grounding of newer A320neo aircraft due to engine issues, Chief Financial Officer Aditya Pande said on a call with analysts on Thursday.
The higher costs are expected to continue for the next couple of quarters and taper off in 2022, Pande said.
The company had a net loss of Rs 651.5 crore in the corresponding period a year ago.
According to a release, InterGlobe Aviation's total income rose 31 percent to Rs 8,539.8 crore in the second quarter of the current fiscal. In the year-ago period, the same stood at Rs 6,514.1 crore.
IndiGo Chief Executive Office Ronojoy Dutta said that while revenue performance was much better during the September quarter, the losses were accentuated by forex losses on operating lease liabilities created under Ind AS 116, and re-assessment of accrual estimates for future maintenance cost, according to a PTI report.
Indian Accounting Standard 116 or Ind AS 116 has come into effect from 1 April and pertains to principles for the recognition, presentation and disclosure of leases. The standard would have a significant impact on various industries such as airlines, where aircraft operated are mostly on lease.
The loss before tax stood at Rs 1,031.8 crore in the latest September quarter where it was Rs 987.2 crore in the year-ago period.
"Mark-to-market losses on capitalised operating leases of Rs 4,282 million and higher maintenance cost of Rs 3,190 million significantly impacted profitability," the company said.
During the September quarter, yield or average fare paid per passenger increased by 9.4 percent.
The total cost jumped nearly 28 percent to Rs 9,571.6 crore in the three months ended September.
"We remain focused on our growth plans and are expanding both domestically and internationally," Dutta said.
At the end of September, IndiGo had a total cash balance of Rs 18,736.2 crore, including Rs 8,706.3 crore of free cash.
The total debt, including the capitalised lease liability, stood at Rs 19,841.8 crore.
"Post servicing of debt and lease obligations, IndiGo generated Rs 33,340 million through its operating activities for the half-year ended September 2019," the release said.
Domestic passenger traffic slowest in March
Although IndiGo flew more customers compared with a year earlier, domestic passenger traffic in India rose only 1.2 percent year-over-year in September, the slowest increase since March and the second-worst pace in at least five years.
“Are we in a softening economic environment? It looks like it.”
Dutta also estimated a “flattish” year-over-year change in 2019-20 unit revenue, a measure that compares revenue to flight capacity and is used to gauge efficiency.
During the earnings call, Dutta said the company was forecasting a flat unit revenue year-over-year.
"July and August were good strong months, we were confident of what was going on. In September, we started seeing some weakening. September was always weak and it was difficult to separate seasonal weakness from any economic weakness," he said.
“The revenues in the festive season have been somewhat subdued,” Chief Executive Ronojoy Dutta said on the conference call, referring to October, a typically strong period for consumer spending.
The company also cut its expectations for capacity expansion for 2019-20 to 25 percent from 30 percent, blaming a 3-4 month delay in aircraft deliveries by Airbus. It projected capacity growth of 25 percent for 2020-21, Reuters said.
About aircraft deliveries, he said the delays are beyond the airline's control and asserted that it was not pushing back the deliveries.
"We are hungry for more airplanes and we have a lot of routes we would like to fly. We are after Airbus... Unfortunately, all across the aviation industry worldwide, there seems to be a problem with the supply chain... people talk of castings, forgings and that those things are not available.
"All engine manufacturers, all aircraft manufacturers seem to be struggling in keeping up with the demand," Dutta noted.
To a query about the airline's interest in Air India's international operations, Dutta said those are all great questions for which it does not have definitive answers.
"They are all subject matter of great interest. So, we talk about it in various management forums and we do not have something to declare or announce as a yes or no. We recognise that we are at a point of evolution where we have to think about longer-range aircraft but beyond that, I don't have much to share at this point," he said.
The government is working on the final contours for the disinvestment of loss-making Air India.
The airline had a fleet of 245 planes, including 129 A320 CEOs, 89 A320 Neos, 6 A321 Neos and 21 ATRs. It had services to 77 destinations, including 19 international ones, at the end of September.
Shares of InterGlobe Aviation rose nearly one percent to close at Rs 1,668 apiece on the BSE.
Tussle between co-founders
The results come against the backdrop of an escalating tussle between IndiGo co-founders and top two shareholders Rakesh Gangwal and Rahul Bhatia over corporate governance issues and future strategy.
The feud came into the public in July when Gangwal had sought Sebi's intervention in alleged corporate governance lapses at the company.
Gangwal had alleged that Bhatia’s affiliate IGE Group had unusual control over IndiGo. Earlier this month, Bhatia alleged Gangwal had breached shareholder agreements and filed cases in courts in London and the United States, according to media reports.
On 1 October, Bhatia and his group InterGlobe Enterprises sought arbitration proceedings in London.
In deepening rift between the two, who were long-time friends, Bhatia has also filed petitions in US courts seeking evidence from Gangwal and InterGlobe Aviation's independent director Anupam Khanna for the arbitration proceedings.
Some analysts said the feud will not hurt IndiGo’s performance, while others believe a prolonged dispute could impact high-level decision making at the Gurugram-based airline.
IndiGo and smaller rival SpiceJet Ltd have benefited this year from the collapse of cash-strapped Jet Airways, once India’s largest private carrier, as both raced to fill Jet’s vacated slots.
--With inputs from agencies
Akasa Airline gets NOC for aviation ministry: All you need to know about the Rakesh Jhunjhunwala-backed company
The new airline is looking to start operations by the summer of 2022 and is planning to have 70 airplanes in four years
Jyotiraditya Scindia virtually flags off Alliance Air flight connecting three Northeastern cities to Kolkata
The Alliance Air flight will fly on Kolkata-Guwahati-Aizwal-Shillong route four days a week
The government is divesting its 100 percent ownership of Air India and Air India Express along with its 50 percent stake in ground-handling company AISATS