After record Q1 profit, IndiGo braces for a weak Q2

After reporting its highest ever quarterly profit of ₹1,203 core in the April to June quarter of the ongoing fiscal, India’s largest airline IndiGo is bracing for a weak second quarter as a low-fare environment has set into the crucial 0-15 day booking period.

“We continue to see a base increase of 5% in our unit revenues due to our various initiatives. Cessation of services of Jet Airways positively impacted our profits this quarter [April to June] helping our unit revenues to grow by 2-3% to the best of our estimates,” Ronojoy Dutta, CEO, InterGlobe Aviation, which owns and operates IndiGo, said on a recent investor call.

“This quarter saw higher percentage of bookings in the 0-15 day window with close-in fares also holding up and helping our revenue performance.” However, he added, “We are witnessing some lower fares in the 0-15 day booking window and expect this to add some pressure to our unit revenues in the second quarter.” Reason being: all airlines have replaced the capacity vacated by Jet Airways.

Interestingly, in June, revival budget airline SpiceJet captured some market share from IndiGo. According to report by financial services firm IndiaNivesh, SpiceJet gained 80 basis points in market share to 15.6%, while IndiGo’s market share dropped 90 basis points to 48%.

“We believe SpiceJet will get aggressive to gain market share. This could lead to a price war and add pressure in the 0-15 days booking period. This makes us skeptical towards the industry at large,” read the report.

"I want to remind our shareholders that in the second quarter last year we registered a negative 16% PBT margin. We will of course do better than that this year but how much better is still an open question,” Dutta told analysts. And added, “On our capacity guidance, we expect a year over year capacity increase in terms of ASKs [Available Seat Kilometer] of 28% for the second quarter of this fiscal year. For the full year, we expect capacity increase of 30%.”

In the quarter under review IndiGo’s profit zoomed 43 times to ₹1,203 crore on the back of strong passenger revenue growth along with a sharp improvement in cargo revenue. The airline’s passenger ticket revenue increased by 47% to ₹8,445.10 crore over the year-ago period on the back of a 30% capacity growth.

“We have worked on improving our systems and processes and have increased the range of products that we now carry in our aircraft belly. As a result, our cargo revenue increased by 35% for the quarter helped of course partially by cessation of services of Jet Airways,” Dutta said.

Meanwhile, the board of InterGlobe Aviation has decided to seek the approval of its shareholders at its upcoming Annual General Meeting to expand its board and enable the induction of an independent woman director. This decision was taken amid the ongoing feud between the airline’s billionaire co-founders, Rakesh Gangwal and Rahul Bhatia, over corporate governance lapses. Gangwal had demanded that the board be expanded to include an independent woman director, as is mandated by law.