publive-image

IndiGo reports a ₹986.7 crore net loss in Q2 due to rising costs and operational challenges

The airline IndiGo reported a net loss of ₹986.7 crore for the second quarter of the 2024-25 financial year. This marks a significant shift for the airline, which had enjoyed a profitable streak over the past six quarters. Rising fuel costs, increased airport charges, and higher aircraft lease expenses have contributed to this downturn. The financial landscape for the airline industry, particularly for IndiGo, remains challenging as it grapples with multiple external pressures.

IndiGo Q2 Results

The IndiGo Q2 result shocked industry analysts and investors alike. A Bloomberg survey had projected an average profit of ₹134 crores for the quarter, typically characterised by sluggish demand. Instead, IndiGo found itself navigating unexpected hurdles. The last time the airline reported a net loss was in the second quarter of the previous financial year when it recorded a loss of ₹1,583.3 crore.

Chief Financial Officer Gaurav Negi discussed the company’s challenges during a call with investors. He mentioned that aircraft groundings peaked in the mid-70s during the September quarter but are now beginning to decline. Grounded planes are expected to decrease to the upper 60s by the end of 2024 and further drop to the 40s by the beginning of the next financial year.

Grounded Aircraft Issues

The grounding of aircraft has primarily stemmed from issues related to Pratt & Whitney engines, a significant factor in the airline’s operational disruptions. In September 2023, PW flagged a potential defect in its engines, prompting IndiGo to ground approximately 35 aircraft for detailed checks. Before this incident, around 40 aircraft were already grounded due to an earlier problem with PW’s geared turbofan engines. To mitigate capacity shortages, IndiGo has leased additional aircraft, including Boeing 737s from Qatar Airways, which has led to rising costs.

Negi noted that "other costs," not related to fuel or foreign exchange, have increased significantly due to groundings and mitigation-related lease costs. He also highlighted that annual contractual charges at airports have risen, driven by new control periods set by the Airports Economic Regulatory Authority.

Fuel Costs and Airport Infrastructure

Fuel expenses have surged sharply, climbing 12.8 percent year-on-year to ₹6,605.2 crores. Several factors contribute to this increase, including the higher value-added tax on aviation turbine fuel (ATF) in certain states, changes in IndiGo’s fleet mix, and escalating congestion at major airport hubs. Chief Executive Pieter Elbers pointed out that infrastructure challenges at key locations like Delhi and Mumbai are major hurdles for operational efficiency.

The operational capacity of Mumbai’s airport runway has been reached, while only one part of Delhi’s Terminal 1 has resumed handling flights, still undergoing refurbishment after a roof collapse incident. These infrastructure limitations are expected to impact the operational performance of airlines and hinder their ability to expand capacity.

Domestic vs. International Markets

Despite these challenges, revenue from the domestic market, which comprises over three-quarters of IndiGo’s passenger income, has grown more robustly than that from the international market. However, yields from the international sector have moderated compared to the previous year. Elbers remarked on increased competition in international routes, stating, “India has become a very lucrative market for people.”

IndiGo remains steadfast in its plans for international expansion, aiming to add three new destinations by the end of the financial year. This expansion will bring its total international destinations to 40, with international capacity projected to reach 30 percent of available seat kilometres.

Conclusion

While the September quarter typically presents a weaker performance for airlines, IndiGo’s long-term outlook on the Indian aviation market remains positive. The airline is making strategic moves to navigate current challenges, focusing on infrastructure improvements and fleet expansion. Despite recent losses, the airline is well-positioned to adapt and thrive in a dynamic market environment. As IndiGo continues to evolve, stakeholders will closely monitor the impact of these strategies on its financial performance and share price.