Indigo Soars in Q1, But Is It Too Early to Celebrate?
InterGlobe Aviation’s reported record quarterly profit and revenue is a result of several factors that have positively impacted the company’s financial performance. Firstly, there has been robust demand for air travel in India, which has led to increased passenger traffic and higher ticket sales for IndiGo. This surge in demand has driven the company’s total income to rise by 32% compared to the previous year.
Lower fuel costs have also played a significant role in boosting the company’s profitability. As fuel expenses are a major cost component for airlines, a decline in fuel prices can result in substantial savings, leading to improved profit margins for IndiGo.
Furthermore, the favorable foreign currency movement has contributed to the company’s strong financial performance. The airline benefits from lower costs for aviation-related expenses denominated in foreign currencies, further enhancing its profitability.
InterGlobe Aviation’s prudent financial management has resulted in a substantial increase in its free cash, which now amounts to ₹15,691 crore. With this strong liquidity position, the company plans to make early investments in aviation-related companies and acquire assets such as aircraft and engines to make better use of its cash flows.
The company’s change in strategy regarding acquiring assets such as engines and aircraft is driven by the positive business sentiment over the last three quarters, indicating a recovery from the impact of the COVID-19 pandemic on the aviation industry. This change in strategy is reflected in the company’s cumulative profit of ₹5,421 crore over the three quarters from October 2022 to June 2023.
InterGlobe Aviation’s plan to invest ₹7 crore in its venture capital arm indicates the company’s commitment to exploring new opportunities and diversifying its business. With internal discussions underway, the airline aims to make strategic investments in early-stage firms operating in aviation, consumer-focused, and allied sectors. This move is expected to leverage the company’s large consumer base and add value to its operations.
During the quarter ending June 2023, IndiGo achieved significant milestones, flying a record 300,000 passengers on a single day in May, which marked its highest daily air traffic to date. The overall passenger traffic also surged by 30% compared to the previous year, with 26.2 million passengers flown during the quarter. This strong demand for air travel has contributed to the company’s record quarterly profit and revenue.
Despite the positive performance, the airline faced challenges in terms of non-fuel expenses, which increased by over 9% to ₹8,842 crore during the quarter. However, fuel expenses decreased by 13% to ₹5,228 crore, resulting in overall total expenditure falling slightly by 0.1%.
The yield, which represents the revenue earned per paying passenger flown per kilometer, was ₹5.18 per km in the current quarter, showing a slight decrease of 1.2% compared to the year-ago figure of ₹5.24 per km. Nevertheless, the airline’s yield improved compared to the preceding March quarter when it was ₹4.85 per km.
IndiGo’s performance in the quarter under review reflects the strong rebound in the Indian civil aviation market, with average daily air passenger traffic surpassing pre-pandemic levels and even the previous quarter of the last fiscal year. The airline’s strategic decision to order 500 aircraft in June has further bolstered its growth plans, with a total of 980 aircraft to be delivered by the middle of the next decade.
Looking ahead, IndiGo aims to expand its international operations, particularly in the 5-6 hour flying range, to add new routes and strengthen its presence in the overseas segment. The upcoming launch of flights to cities like Tbilisi, Baku, Tashkent, Almaty, Nairobi, and Jakarta demonstrates the airline’s commitment to tapping into new markets and catering to the growing demand for air travel in these regions.
By leveraging its large fleet and focusing on strategic investments, IndiGo is poised to capitalize on the recovery in air travel demand and maintain its position as India’s largest airline. The company’s expansion plans and commitment to enhancing customer experience are expected to drive its growth in both domestic and international markets.
IndiGo is closely monitoring the latest issue related to Pratt & Whitney engines, and it expects only a “single-digit” number of engines to be removed from its fleet for inspection under the first phase by the engine maker. This proactive approach demonstrates the airline’s commitment to ensuring the safety and reliability of its aircraft.
Regarding the recent penalty of ₹30 lakh imposed by the regulator for four tail-strike incidents in Airbus A321 aircraft, IndiGo is conducting a thorough investigation into these incidents. The airline is carefully evaluating the notice from the Directorate General of Civil Aviation (DGCA) and is determining the appropriate steps to address the situation. Safety remains a top priority for IndiGo, and the company continues to refine and optimize procedures and processes to uphold the highest safety standards.
IndiGo’s management, led by CEO Pieter Elbers, emphasizes the importance of safety and is committed to taking all necessary measures to ensure the well-being of passengers and the smooth operation of its flights. By actively addressing any issues and adhering to stringent safety protocols, IndiGo aims to maintain its reputation as a reliable and trustworthy airline in the aviation industry.
IndiGo remains optimistic about its growth prospects and is actively working towards expanding its operations. Following the suspension of Go First on 3 May, there was an overlap of around 15-20% of routes that were affected. The airline has received some slots at airports due to Go First’s suspension, but it is still awaiting further clarity from stakeholders on the status of those slots as Go First attempts to resume flights. Despite this challenge, IndiGo is committed to overcoming obstacles and maintaining a strong presence in the market.
IndiGo’s ambitious goals include doubling its size and scale by the end of the decade. To achieve this, the airline plans to increase passenger traffic on its network to 100 million in the current financial year, building on the 85.6 million passengers it carried in 2022-23. The company is also working towards achieving a positive net worth status, which will be a crucial step in considering the possibility of dividends for its shareholders.
With a focus on enhancing its market position and financial stability, IndiGo remains dedicated to providing safe and reliable air travel services to its customers. The airline’s determination to grow and adapt to changing market conditions positions it for continued success in the competitive aviation industry.
