Image: Vivek Prakash/ Reuters
InterGlobe Aviation, the owner and operator of India’s biggest airline IndiGo, reported a record quarterly net profit of Rs 811 crore in the quarter ended June 30 of the ongoing fiscal, registering a growth of 37.1 percent over the same quarter of the previous fiscal. The company said this was its “highest ever quarterly profit.”
In the April to June quarter, IndiGo saw its overall passenger load factor increase by 4.7 percentage points, while its yields grew 2 percent over the same period a year ago.
As a result, the airline reported revenues of Rs 5,955.54 crore in the quarter under review, registering a growth of 25.6 percent on a year-on-year basis.
While passenger revenues amounted to Rs 5,078 crore, an increase of 27.9 percent, ancillary revenues stood at Rs 588.51 crore, up 1.4 percent. Besides, the company reported a 25 percent growth in other income, which it did not elaborate on.
The airline’s senior management, on a conference call to investors on Monday, however, said that IndiGo was being compensated by engine manufacturer Pratt and Whitney for the problems the airline was facing with its Airbus A320neo aircraft engines.
IndiGo operates 22 A320neo aircraft that are 15 percent more fuel efficient than the predecessor, the A320ceo. According to Aditya Ghosh, the company’s president and whole-time director, there have been days when the airline has been forced to ground nine A320 neo aircraft due to the lack of spare engines. “While we do receive certain compensation from Pratt and Whitney for these groundings, the operational challenges are quite challenging and we are not happy with that,” said Ghosh.Change in aircraft purchase strategy
On the hour-long investor call, Rohit Phillip, chief financial officer, InterGlobe Aviation said the airline was considering a change in its fleet acquisition strategy, which would reduce operating costs and result in higher profitability. “Going forward, we anticipate reducing the use of a sale and leaseback model and gradually begin the process of owing aircraft [that would be purchased] through internal funds and debt,” said Philip.
Philip made public that IndiGo purchases aircraft on a six-year sale and leaseback model, in a bid to move aircraft out of its fleet once a technologically advanced aircraft enters the market. “Now that we have the A320neos, which deliver a 15 percent lower fuel burn and have a much lower risk of technological obsolesce, we may choose to operate these aircraft for a longer period than the six year period we had historically used,” said Philip. He added that over the long term, owning an aircraft tends to have a lower ownership cost. “Also, in the longer term our ongoing cash flow from operations will become stronger as a result of the depreciation tax shield that we get from owned aircraft.”
Philip also used the occasion to clarify what the airline’s competitors have been insinuating: that IndiGo’s super profitability is driven by the huge profits it receives by way of its sale and leaseback strategy. “This is simply not correct,” he said. Increasing public shareholding
As per Indian laws, a listed company is required to have a minimum public shareholding of 25 percent within three years of its listing. IndiGo, which listed on the Indian bourses on November 10 2015, has a 10 percent public shareholding. In order to comply with this law, the company is seeking shareholder approval at its upcoming AGM which will be held in the last week of August. The company is exploring various options to increase its public shareholding, including a combination of issuing fresh shares and an offer for sale by the promoters.
Meanwhile, Philip announced that the company’s board has recommended a dividend of Rs 34 per share for the fiscal year 2017, which would also be placed for shareholder approval at the upcoming AGM. Shares of InterGlobe Aviation were up 0.31 percent at Rs 1,290.75 apiece at the end of trade, on Monday.