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IndiGo optimistic despite poor Q1 results; here's why

IndiGo optimistic despite poor Q1 results; here's why

Even as IndiGo was making steady progress till March this year - after being hit by Covid-19 - the second wave of the pandemic has led to bigger damage. The passenger demand has shrunk considerably, and as a result, IndiGo is not able to deploy its fleet optimally

IndiGo has blamed the second wave of Covid-19, and high ATF prices for its poor set of numbers. Photo: Reuters IndiGo has blamed the second wave of Covid-19, and high ATF prices for its poor set of numbers. Photo: Reuters

India's largest airline IndiGo has recorded a net loss of Rs 3,180.2 crore in the first quarter of FY22. This is the sixth consecutive and the biggest quarterly loss for the low-cost carrier (LCC), which earned revenues of just Rs 3,170.1 crore during the same period. IndiGo has blamed the second wave of Covid-19, and high ATF (aviation turbine fuel) prices for its poor set of numbers.

Even as IndiGo was making steady progress till March this year - after being hit by Covid-19 - the second wave of the pandemic has led to bigger damage. The passenger demand has shrunk considerably, and as a result, IndiGo is not able to deploy its fleet optimally. As per DGCA (Directorate General of Civil Aviation), IndiGo flew 5.95 million passengers in three months to June 2021, a drop of nearly 53 per cent over the quarter ending March 2021.

Though some cost elements have been brought down such as human resources expenses; a large part of IndiGo's cost is fixed (over 40 per cent), including aircraft leases, maintenance costs and staff expenses. To make the matter worse, the fuel costs are rising steadily. ATF, which accounts for 35-40 per cent of the overall costs, has seen its prices soaring from Rs 41,992.93 per kilolitre (at New Delhi T3) in January to Rs 55,886.38 per kilolitre in July.

Over the next few quarters, IndiGo hopes to put more capacity to use as the number of Covid cases goes down. It also believes the government will relax the current restrictions of 65 per cent (of pre-Covid levels) on domestic flights over the next few weeks/months.

"It's a volatile environment. In May, the numbers were so bad. We get these periods of improvement, stall, and improvement. It's driven by narrative in the marketplace. When the Covid numbers are down, we get a sudden surge. Then, there is talk about delta variant, third wave, and we immediately see the numbers stall again. Assuming that the third wave comes but it's relatively flat because of vaccination; our best guess scenario is that by December, we should be back to the pre-Covid level for domestic. International will still be slow," says Ronojoy Dutta, CEO at IndiGo in an investors' call.

The airline's senior management thinks that Covid-19 is a short-term disruption, and the need is to keep an eye on the long-term horizon. "Travel in India is among the lowest yielding in the world. There's not much room for yields to go any lower. Covid is a big crisis but it's a short-term crisis. We don't want to lose sight of the longer-term picture. India story remains strong. Look around at other industries. The middle-income growth story is there. While the quarterly [numbers] are important; when we look at the long term, we are saying that let's run a good airline, focus on the quality, and make sure that we get the right size of the fleet. The long term picture is a stable, thumping great story, and we are not losing sight of that," Dutta told investors.

Also read: IndiGo Q1 results: Net loss widens to Rs 3,174 crore, revenue rises 292%