IndiGo survives worst plane grounding period

MUMBAI: India’s largest airline IndiGo appears to be recovering from the woes of a Pratt & Whitney engine failure that forced it to ground about 75 aircraft, about a fifth of its fleet.

The airline’s management said on an earnings call on Friday that it expects the number of non-operating aircraft to fall below 60 by the end of the year and to 40 by April.

“We are past the peak of the grounding period,” Chief Financial Officer Gaurav Negi said. “The number of aircraft we currently have grounded has reduced from around 70 aircraft in the first and second quarters. About 60 aircraft.”

However, the defective engines took a toll on the company’s finances. The grounding of aircraft coupled with rising fuel costs pushed InterGlobe Aviation Ltd into losses in the July-September quarter.

InterGlobe Aviation, the listed entity that operates IndiGo, reports consolidated loss $Profit in September quarter stood at Rs 987 crore $189 crore in the same period last year.

Also Read | How long until IndiGo gets its grounded fleet flying?

On the bright side, its revenue grew healthily, driven by strong demand from India’s growing upwardly mobile passenger base. In the second quarter, the airline’s passenger revenue increased by about 10% and ancillary services revenue increased by 21%, including its fast-growing cargo business.

Indigo’s consolidated revenue increased 14% year-on-year $16,970 Crores. This includes $14,359 Crore Ticket Revenue $Ancillary services revenue amounted to Rs 1,875 crore. The top line also includes compensation from Pratt and Whitney for the trouble caused by its engine failure.

Higher costs, lower profits

IndiGo’s available seat kilometers (ASK) increased 8% year-on-year to 38.2 billion during the quarter, in line with management guidance. ASK is an aviation industry-specific measure of available passenger carrying capacity.

IndiGo is the first airline in the history of Indian aviation to have a fleet of more than 400 aircraft. The company currently has 410 aircraft in its fleet, compared with 334 a year ago.

IndiGo’s cost per available seat kilometer (CASK), a convenient measure of an airline’s operational efficiency, grew 12% year-on-year to $4.69. This was driven by rising fuel costs, higher airport charges and expenses incurred by IndiGo on temporary leasing of more aircraft to mitigate the impact of grounding of aircraft.

ALSO READ | IndiGo: Past, present and potentially exciting future

Higher costs eroded margins, with earnings before interest, taxes, depreciation and amortization (EBITDA) falling by a quarter to $1,632 Crores. The EBITDA margin was 9.62%, down more than five percentage points year-on-year.

IndiGo said it will start returning old aircraft on temporary lease from January as its grounded planes start taking to the skies again. This will help the airline cut costs because not only will it not have to pay lessors, but older aircraft consume more fuel and are often more expensive to maintain.

Give passengers a chance to breathe?

This is also expected to be helpful to the average Indian passenger as the cost savings are expected to trickle down to the ticket prices. However, analysts say passengers will gain the most when grounded planes from Go First and SpiceJet Ltd also return to the skies, adding to industry capacity.

More than 100 aircraft are grounded between the two aircraft carriers.

Also Read | SpiceJet’s road to recovery: The tough and long climb to regain market share

“While IndiGo’s return of (leased) aircraft is a step in the right direction, real change will come only if we can return SpiceJet’s grounded aircraft and GoFirst’s grounded aircraft due to engine issues,” Aviation Consulting said Mark Martin, founder and CEO of Martin Consulting.

“The return of IndiGo’s aircraft may not have much impact in terms of respite from high fares. However, if oil prices remain low, there should be some respite in the future,” Martin added.

In the September quarter, IndiGo also received approval from the Securities and Exchange Board of India to set up an alternative investment fund to invest in startups in the aviation space. Named IndiGo Ventures Fund-I, with initial capital of $295 crores.

Interglobe Aviation fell over 3% in NSE trade on Friday, closing at $$4,373.70 per share, before results.

Also Read | Go First push for foreign financing to test India’s insolvency framework