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IndiGo reports record profit despite neo delays

IndiGo reports record profit despite neo delays

2017 08 02

2017 08 02

By Aditi Shah and Jessica Kuruthukulangara | NEW DELHI


Reuters - InterGlobe Aviation, owner of India's IndiGo airlines, reported a record quarterly profit on Monday powered by growth in passenger revenue but warned that delays in deliveries of Airbus's new A320neo aircraft were affecting margins.

IndiGo is among several carriers facing delays in receiving planes from Airbus due to problems with new engines supplied by United Technologies' Pratt & Whitney, which has also forced India's biggest airline to ground as many as nine planes.

"While we do receive certain compensation from Pratt & Whitney for these groundings, the operational disruptions are quite challenging," InterGlobe president Aditya Ghosh said during a call with analysts after reporting first-quarter results.

Ghosh said that it may take about a year before Pratt & Whitney makes design changes to solve the problem and it has therefore asked the company to increase the availability of spare engines.

Low-cost carrier IndiGo has expanded rapidly since its launch in 2006 and now flies four of every 10 passengers on India's domestic routes.

The airline expected to have 36 A320neos in its fleet by now but only has 22, said Rohit Philip, IndiGo's chief financial officer, adding that to make up for the shortfall it has taken used A320 aircraft on short-term leases.

This has increased the airline's operating cost because of higher maintenance costs and a higher fuel burn rate as compared with the A320neos, Philip said.

InterGlobe's profit rose 37 percent to 8.11 billion rupees ($126.35 million) in the three months ended June 30 from a year earlier, helped by a 27.9 percent growth in passenger revenue.

IndiGo's revenue per available seat kilometre rose 5.5 percent to 3.82 rupees while its average fare yield, as measured by revenue per passenger carried and kilometre flown, rose 2 percent to 3.83 rupees - the highest in six quarters.

InterGlobe said it expected capacity to grow at a compound annual growth rate of about 20 percent for 2018 to 2020.

IndiGo is also planning a shift in its fleet acquisition strategy and will look at owning some planes while reducing the use of short-term sale and leasebacks. The company plans to use internal funds and some debt for purchases.

"Over the longer term, owning an aircraft tends to have a lower ownership cost than leased planes," Philip said, adding that this will reduce IndiGo's operating cost.

A new unified goods and services tax has also influenced IndiGo's decision to own rather than lease planes.

IndiGo, which has expressed an interest in buying state-owned carrier Air India's international arm and low-cost division, also plans to start flying smaller planes to second-tier towns and cities later this year.

In May it said it has placed a provisional order for 50 ATR 72-600 aircraft from European turboprop maker ATR, worth over $1.3 billion at list price.

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