Interglobe Aviation Ltd., India’s largest airline by market share operating under the brand IndiGo, in its Q3 earnings call mentioned that the company expects yields to moderate by low single digits year-on-year, with international Available Seat Kilometers (ASKs) now at 28% of total capacity. The company also reported a largely unrealized forex loss of INR1,400 crore, with 60-70% hedging coverage for the next 12 months. The company is expanding its business class offering “IndiGo Stretch” with plans for 40-45 planes by end of 2025. While domestic yields saw slight moderation, international yields faced higher pressure due to increased competition, though strong demand helped offset this impact.
Interglobe Aviation reported a 18% year-on-year decline in net profit for Q3, with multiple factors contributing to this decrease including rupee depreciation, festival season timing differences, and operational challenges from grounded aircraft. While revenue grew 14% and the airline maintained a strong 63.8% market share with 273.25 lakh passengers, it faced increased operational costs with cost per available seat kilometer, excluding fuel, rising 23.1% and yield per passenger declining to INR5.43. Currently, about 60 of IndiGo’s 437 aircraft are grounded due to Pratt & Whitney engine issues, though this is expected to improve to around 40 by next financial year.
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Financial/Operational Metrics:
- Revenue from Operations: INR2,211 crore, up 14% YoY.
- Net Profit: INR2,442 crore, down 19% YoY.
- EPS: INR63.2, down 19% YoY.
- Passengers Carried: 31.1 million, an increase of 12.7% YoY.
- Unit Passenger Revenue (PRASK): INR4.72, up 0.3% YoY.
Outlook:
- Capacity Growth: Anticipate 20% growth in ASK for Q4.
- Passenger Demand: Strong demand expected to continue, supported by strategic fleet additions and lower fuel costs.
Analyst Crossfire:
- Yield Clarification, ASK Growth & Demand (Pramod Kumar – UBS): Yields are expected to moderate by early single-digit percentage quarter-on-quarter. ASK growth aligns with capacity guidance, with a 20% growth in Q4 FY25 and consistent high load factors above 90%, reflecting strong demand (Gaurav Negi – CFO, Pieter Elbers – CEO).
- Domestic vs. International Demand & ForEx Loss Breakdown (Pramod Kumar – UBS, Amyn Pirani – J.P. Morgan): Robust domestic demand across metros and non-metros supports growth, while international operations contribute 28% of ASKs, highlighting strategic expansion. Unrealized mark-to-market losses form 99% of ForEx losses, while international revenue growth provides a natural hedge (Pieter Elbers – CEO, Gaurav Negi – CFO).
- Hedging Strategy & Lease Cost Trends (Binay Singh – Morgan Stanley): The company hedges 60-70% of 12-month cash outflows while leveraging natural hedges from international revenue to manage ForEx exposure. Damp lease costs moderated due to seasonal rate adjustments, balancing increased ASK capacity with stable lease expenses (Gaurav Negi – CFO).
- Fleet Additions & Capacity Growth, Fuel Cost Trends (Sabri Hazarika – Emkay Global, Jinesh Joshi – PL Capital): IndiGo added nearly 70 aircraft in nine months and expects 20% Q4 capacity growth, supported by demand recovery and a robust load factor above 90%. Despite year-over-year price reductions, fuel costs were impacted by increased VAT, congestion, and ForEx effects, offsetting expected savings (Pieter Elbers – CEO, Gaurav Negi – CFO).
- RASK, Wet Lease and Aviation Bill Impact (Kushagra – Chanakya Wealth Creation): Domestic RASK performed strongly in Q3, while international yields faced competitive pressure; wet leases address capacity challenges but will be reassessed as supply stabilizes. The pending bill is expected to boost aviation financing confidence, supporting IndiGo’s long-term growth strategy (Pieter Elbers – CEO, Gaurav Negi – CFO).
- Business-Class Launch, International Yields & Margins (Ansuman Deb – ICICI Securities, Prateek Kumar – Jefferies): IndiGo’s premium offering has received a positive market response, with plans to expand to 40-45 aircraft by 2025, targeting metro routes for tailored solutions. While international routes have lower yields due to longer distances, they offer higher margins and strategic growth opportunities (Pieter Elbers – CEO).
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