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IndiGo: Four Consecutive Quarters Of Losses


InterGlobe Aviation Ltd., the parent company of budget carrier IndiGo, reported a loss for the fourth consecutive quarter as the pandemic limited its operations. The airline operator reported a loss of ₹ 627 crore as it operated only 59% of its capacity due to the outbreak of Covid-19.

The recent loss has brought down, the company’s net worth by one-third to near ₹ 1,200 crore.

India’s largest airline earlier expected the domestic capacity to be around 80% by the end of 2020 and expected it to reach pre-Covid levels in January-February 2021. However, due to restricted operations, it now expects its capacity to be in the range of 75-80% for the March ended quarter.

IndiGo: Four Consecutive Quarters Of Losses

This capacity restriction is a drag on overall utilisation. And without higher utilisation the company cannot achieve profitability.

Comparing the unit metrics of IndiGo would give a much clearer picture of the performance.

  • Revenue available per seat kilometer (RASK) remained constant over the last quarter. Compared to last year it has declined due to restricted operations.
  • Cost available per seat kilometer (CASK) lower QoQ due to increase in capacity. Compared to last year, it has remained stable on the back of foreign exchange gains, cost-cutting measures, and lower employee costs
  • Yield – which measures average fare per passenger per kilometer – weakened due to lower ticket prices.

IndiGo: Four Consecutive Quarters Of Losses

In the Q1FY21 earnings conference call, the management said that it is looking to replace new NEO aircraft with older CEO aircraft.

We value the efficiency and structural low costs associated with our new NEO aircraft, and thus we will continue to substitute them for the older CEO aircraft as fast as we can. We are therefore taking deliveries of all our new NEO aircraft and balancing these fleet additions by returning all the CEO aircraft that we had committed to earlier.

Aditya Pande, CFO, IndiGo

However, the pace of returning older planes has not been able to match with that of aircraft deliveries. Compared to last year, the company has replaced only 15 old planes and bought 30 more new aircraft despite lower operations. As the company inducts more and more new planes, the lease rentals will keep on increasing.

IndiGo: Four Consecutive Quarters Of Losses

Like last quarter, in Q3 also the company sold 7 of its own aircraft, to generate cash. The company has managed to generate liquidity of close to ₹ 5,400 crore in the first nine months of the financial year 2021 and expects to generate around ₹ 1,200 crore in the ongoing quarter.

Conference Call Key Takeaways:-

Cash burn reduced to ₹ 15 crore per day vs ₹ 25 crore per day in Q2

Not sure whether cash burn will further reduce in Q4 as it is a weak quarter

Revenue environment is volatile and the fare environment currently is too low

Expect 50% international capacity by mid-next-year

On track to return 100 older planes by December 2022

Should You Buy IndiGo?

There is no doubt that IndiGo is a well-run business and is one of the best-placed airlines in India. It has a 50%+ market share and a strong balance sheet. However, the current valuations look to have priced-in all the positives.

With ticket prices and capacity utilisation remaining low and oil prices rising, concerns continue to loom over the airline operator’s profitability. As such, investors would do well to exercise some caution.

This article is for informational purposes only and should not be considered as a recommendation to buy or sell any stock.

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