Why IndiGo Is Losing Money Despite Selling More Tickets In Post-Covid World

Interglobe Aviation - parent of the country's largest budget airline operator - IndiGo - on Wednesday reported that its net loss widened to Rs 1,682 crore in quarter ended March 2022 compared with loss of Rs 1,147 crore in the same quarter last year. The sharp increase in loss came on the back of disruptions caused due to Omicron wave of Coronavirus and surge in aviation turbine fuel (ATF) prices. 
 
The fuel prices during the quarter jumped by a whopping 61 per cent annually. The company's aircraft fuel expenses jumped 68 per cent to Rs 3,220 crore from Rs 1,914 crore. 
 
IndiGo's operating profit or earnings before interest, taxes, depreciation, amortization, and rent costs (EBITDAR) came in at Rs 171.8 crore with EBITDAR margin of 2.1 per cent, compared to EBITDAR of Rs 648.3 crore with EBITDAR margin of 10.4 per cent for the same period last year 
 
IndiGo's revenue from operations however jumped 29 per cent to Rs 8,021 crore versus Rs 6,223 crore in the year ago period. Its passenger ticket revenue was Rs 6,884 crore, an increase of 38.4 per cent and ancillary revenue was Rs 1,058 crore, an increase of 18.8 per cent compared to the same period last year. 
 
Number of passengers increased by 10.3 per cent in March quarter compared to the same period last year. 
 
“This quarter has been difficult because of the demand destruction caused by the Omicron virus in the first half. Although traffic rebounded and demand was robust during the latter half of the quarter, we were challenged by high fuel costs and a weakening rupee. We believe IndiGo is best positioned to maximise revenue in a recovering market. As we work to return the airline to profitability, we are focused on maintaining our cost leadership position and continuing to build the most efficient network in the region,” said Ronojoy Dutta, Interglobe Avaiation's CEO. 
 
Getting Back On The Runway In Turbulent Times 
 
The aviation industry in India is going through tough times as companies are grappling with rising fuel costs which has resulted in increased tariffs amid stiff competition expected in days to come with entry of Rakesh Jhunjhunwala-backed Akasa Air and Jet Airways set to enter the industry, analysts said. 
 
"We believe that despite the near-term challenges, IndiGo will be out of the woods stronger than before with various pre-emptive measures already undertaken. However, the resurgence of airlines (Air India, Spicejet) and upcoming Akasa Air along with established Jet Airways would reduce Indigo’s market share going forward," brokerage firm Motilal Oswal said. 
 
IndiGo’s management expects passenger yields to contract going ahead with entry of new and established players. The management is expecting the yield to contract from the current level given the entry of new and established players (Akasa Air/Jet Airways) in the market that might result in higher competition.  
 
Brokerage firm Motilal Oswal has reduced its estimates for passenger yield and enterprise value to EBITDAR ratio given the expected competition. 
 
“We reduce its yields to 3.9 per cent for FY24 estimates from 3.95 per cent, keeping FY23E unchanged, and lower our EV/EBITDAR multiple to 7 times (from 8 times),” Motilal Oswal said. 
 
Meanwhile, IndiGo has said that it expects available seat kilometers (ASKs) to increase by around 150 per cent in the first quarter of current financial years compared to the first quarter of fiscal year 2022. For financial year 2022-23 it expects capacity in terms of ASKs to increase by around 55-60 per cent as compared to the fiscal year 2022.