IndiGo back in profit after nearly two years, but headwinds yet to abate
PremiumAir passenger volumes had fallen sharply since December-end due to the emergence of covid’s third wave
NEW DELHI : IndiGo surprised the Street with its first quarterly profit in nearly two years primarily on the back of an increase in passenger traffic and yields in the December quarter. However, the largest domestic airline is expected to struggle in a tough March quarter impacted by a rise in crude prices, and lower passenger demand.
According to financial services firm Motilal Oswal, IndiGo beat its estimates to report a higher-than-estimated yield at ₹4.4 in Q3FY22, against ₹3.7 in Q3FY21, and 7% higher- than-estimated revenue passenger kilometre (RPK)—a figure arrived at by multiplying the number of paying passengers with the distance flown by a carrier.
IndiGo reported a consolidated net profit of ₹129.80 crore in the December quarter against a loss of ₹620.14 crore in the year earlier. “IndiGo’s Q3FY22 (October-December period) yields were higher because of pent-up demand," Motilal Oswal said in a 6 February report. “That said, as per our airfare tracker, 30-day forward prices dropped sharply, -29% month-on-month (m-o-m) in January, and 15-day forward prices dipped 35% m-o-m due to the same reason but a reversal is likely as demand improves once again."
Air passenger volumes had fallen sharply since December-end due to the emergence of the Omicron-led third wave of covid infections. However, traffic is slowly bouncing back since early February with a dip in fresh cases. From 350,00- 360,000 levels in early December domestic passenger traffic fell to sub 150,000 levels a day in January before clawing back to the 225,000 levels in early February. The recent rise in crude oil prices also poses a challenge for the aviation sector’s recovery from the losses it incurred in the past two years, largely due to the pandemic.
Brent crude oil, trading at $93.69 a barrel on Wednesday, has risen 53.19% over the last year. “While traffic recovery is imminent, we are concerned over the sustainability of present levels of unit profitability in a high crude price environment," brokerage firm Centrum said in a report on IndiGo.
However, Prabhudas Lilladher said IndiGo is best placed among peers to emerge from the pandemic stronger on the back of a strong balance sheet, low-cost structure and strong management team.
Meanwhile, Rahul Bhatia, Indigo co-founder and promoter, who took over as the managing director recently, will be involved in the airline’s day-to-day operations.
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Promoters Rakesh Gangwal and Bhatia had so far left the day-to-day running of the airline primarily to a professional management team. “He probably never got involved in running the airline earlier as he was not experienced in airline business and left it largely to professionals. Now, he has the confidence," a former IndiGo executive said, seeking anonymity.
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