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Rediff.com  » Business » Mounting expenses, intense competition clip IndiGo's wings

Mounting expenses, intense competition clip IndiGo's wings

October 24, 2018 23:21 IST

IndiGo's co-founder and interim CEO Rahul Bhatia said profitability was significantly impacted by costs pressure from the increases in fuel price and the depreciation of rupee as well as competitive fare environment.

Flying into the red, IndiGo's parent InterGlobe Aviation Wednesday posted a loss of Rs 652.1 crore in the quarter ended September as the no-frills airline was battered by spiralling costs and intense competition.

 

This is the first time that the carrier has posted a quarterly loss since getting listed in November 2015.

IndiGo, the country's largest airline with over 40 per cent market share, reported a profit of Rs 551.6 crore in the year-ago period, according to a regulatory filing.

The domestic aviation sector, one of the fastest growing in the world, is grappling with rising fuel prices and inability of carriers to hike fares as competition remains intense.

IndiGo's co-founder and interim CEO Rahul Bhatia said profitability was significantly impacted by costs pressure from the increases in fuel price and the depreciation of rupee as well as competitive fare environment.

The airline's total income rose over 18 per cent to Rs 6,514.2 crore in the second quarter ended September 2018.

In the same period a year ago, the total income stood at Rs 5,505.6 crore.

During a post-earnings call with analysts, Bhatia said IndiGo was forced to keep the fares low because of the intense competition posed by peer group.

"At IndiGo, we are not leading the charge termed as low fares. We never have that policy. What you see today in the market is there are players in the industry who are really hurting and for them to raise short-term cash, they have to lower fares and we as a company have no choice but to match them," he said.

For the latest quarter, passenger ticket revenues rose 17.2 per cent to Rs 5,285.2 crore while ancillary revenues climbed 12.8 per cent to Rs 716.7 crore compared to the year-ago period.

However, fuel costs soared 84 per cent to Rs 3,035 crore in the three months ended September 2018.

As per the filing, total costs incurred surged 58.2 per cent to Rs 7,502 crore in the latest September quarter.

The total debt of the airline stood at Rs 2,641.1 crore at the end of September 2018.

At the same period, IndiGo's total cash balance was Rs 13,163.7 crore, including Rs 4,417.5 crore of free cash.

IndiGo's chief financial officer Rohit Philip said the 0-15 days booking window remains weak with lower fares compared with the same period last year.

"This has been further accentuated by the significant increase in the capacity in the market," he said.

Bhatia said that IndiGo was open to expand inorganically as well if an opportunity comes along its way in the domestic market.

IndiGo is terribly busy building what it has set out to build "but if some thing came along that is attractive, we would look at it," he said.

The response was to a query on whether IndiGo would look at another domestic opportunity.

Earlier, the airline had plans to acquire certain operations of national carrier Air India.

The comments also assume significance amid reports that Tata Sons is interested in acquiring stake in beleaguered Jet Airways.

As many as 20 aircraft were added in September quarter to the fleet which has 189 planes.

These include 127 A320 ceos, 50 A320 neos and 12 ATRs as on September 30.

The airline expanded its network by five destinations -- four domestic and one international -- during the quarter to take the total number to 57.

"Despite this difficult environment, IndiGo remains well-positioned, thanks to our low cost structure and strong balance sheet," Bhatia said.

Bhatia said that there has not been any change in its strategy of starting to own some planes with free cash going forward.

However, now "we are holding (plans) of buying A320s with cash and continue to rely on the same sales and lease back model.

"We have already started doing it with ATRs. We do intend to buy A320s at some point with some cash as well," he said.

Philip said that IndiGo was getting significantly more aircraft as Airbus had ramped up its deliveries to make up for the delays.

According to him, the airline expects 35 per capacity addition in the third quarter while the full year fiscal was likely to see an over all 30 per cent capacity addition.

"Our balance sheet continues to remain strong," he added.

Photograph: Adnan Abidi/Reuters

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