On May 23, 2024; IndiGo announced record breaking results with annual profit of INR 8172.5 Crore. This marked the sixth consecutive quarter of profit for the airline which has had its own share of challenges starting with the massive grounding of planes. This bumper profit still does not cover the losses of FY21 and FY22 when the airline lost INR 12,001 crore as the country reeled under the pandemic waves and both capacity and air fares were capped – with a floor and ceiling for fares and utilisation percentage for capacity.
Over the years, IndiGo has shifted its guidance from fleet induction and flight count to capacity in the form of ASK (Available Seat Kilometres). It is one of the most keenly tracked metrics by the analysts, especially since it translates into earnings as they are closely linked in absence of any other method of premiumisation and limited ability to increase fares.
What is the guidance?
IndiGo said that it expected an increase of 10-12% in ASK terms in Q1-FY25 compared to Q1-FY24. In Q1-FY24 (Apr – June 2023), the airline’s capacity was 32.6 billion ASK (3267 crore). A 10% increase in capacity would mean 35.9 billion ASKs while a 12% growth would mean 36.5 billion ASKs.
Why do I call it a done deal? IndiGo saw a growth of 14.4% in ASK terms in Q4-FY24 compared to Q4-FY23. This was despite the fact that it saw a spurt in groundings in January. The airline has managed the capacity by a mix of wet leased aircraft and inducting older A320ceo selectively.
IndiGo had an ASK of 34.8 billion in Q4-FY23, or sequentially the last quarter. This is just 3% short of the 10% guidance which is at the lower end of the guidance and 5% short from the upper end. Q4-FY24 (Jan-Mar 2024) compared to Q1-FY24 (Apr – June 2023) has seen a phenomenal 16% growth in International capacity by ASK, on the back of launches of long flights to Jakarta and Bali, along with other international destinations in the former USSR. The domestic growth has been a modest 3.5%.
The split between Domestic and International in Q1-FY24 was 75% domestic, 24.5% International and 0.5% non scheduled. In Q4-FY24, the split had become 73% domestic, 26.8% international and 0.15% non-scheduled. The airline had added few international flights this quarter, like to Abu Dhabi from Chandigarh helping add more capacity by ASK, without adding many flights.
Passenger and Revenue follows
An increase in capacity also sees an increase in passengers and that translates to an increase in revenue. Let us look at the numbers for last quarter, which isn’t the best in terms of business in India and add to that IndiGo had to face groundings. The airline saw an increase in capacity by 14.4%. Passenger numbers increased by 14% and the revenue was up 25.9%. The unusual spike in revenue is because it also includes the compensation or promised compensation, which is still under negotiation with Pratt & Whitney for the engine related groundings.
On a yearly basis, where the engine issue was more balanced, the increase in capacity, passengers and revenue was 21.8%, 24.7% and 26.6% respectively.
Q1 is traditionally a strong quarter driven by holiday travel and IndiGo has benefited from two events at the Tata group of airlines. First the delays, cancellations and shrinking of Vistara in April and then the sick leave induced strike and software glitches induced cancellations at Air India Express.
Network Thoughts
A day after record results by IndiGo and announcement of Business class by end of the year, its shares slumped by 3.4% while benchmark SENSEX ended the day flat with a drop of just 0.01%. This comes amidst the share gaining 60% in the last six months with the benchmark SENSEX gaining 14% in the same period.
What exactly has the market not liked? Is it the business class or that the growth is a done deal and it expected more?
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