InterGlobe Aviation Limited — Q2 FY25 earnings call

Call held 25 Oct 2024

Management summary

IndiGo reported a net loss in Q2 FY25 due to peak AOG groundings in mid-70s driving expensive mitigation costs, rising fuel costs from VAT increases and congestion, and seasonally weaker demand. However, management emphasized turning the corner on groundings with the trajectory now declining. Revenue growth remained healthy at 14.6% with PRASK up 2%. The quarter saw strategic launches of BluChip loyalty program and IndiGoStretch business class announcement, positioning for stronger H2.

Highlights

  • Total income of INR 178 billion (+14.6% YoY); net loss of INR 9.9 billion vs profit of INR 1.9 billion in Q2 FY24

  • Capacity grew ~8% in line with guidance; demand moderation from elections, heatwave, and normalization from high FY24 base

  • PRASK at INR 3.76 (+2% YoY); yields at INR 4.55 (+2.3% YoY); load factor stable at ~83%

  • CASK ex-fuel ex-forex at INR 2.90, up 23% YoY driven by AOG mitigation, contractual escalations, and airport charge inflation

  • AOGs peaked at mid-70s during Q2, now trending down to high-60s; expected to reach mid-40s by FY26 start

  • Fleet reached 410 aircraft (first Indian airline with 400+ fleet); 31 aircraft inducted including 9 damp/secondary leases

  • Free cash of INR 243.6 billion; restricted cash of INR 150 billion; total debt including lease liability INR 592 billion

  • Launched BluChip loyalty program (October) and IndiGoStretch business class announcement for Delhi-Mumbai starting November

Concerns

  • Peak AOG groundings at mid-70s driving expensive mitigation costs

Key financials

  1. Total Income ₹17,800 Cr +14.6%YoY
  2. Net Loss ₹-990 Cr
  3. Net Profit Margin -5.8%
  4. RASK ₹4.45 +5%YoY
  5. PRASK ₹3.76 +2%YoY
  6. Yield ₹4.55 +2.3%YoY
  7. Load Factor 83% 0%YoY
  8. CASK ex-fuel ex-forex ₹2.9 +23%YoY
  9. Fuel CASK — +4%YoY
  10. Free Cash ₹24,360 Cr
  11. Fleet Size 410 aircraft
  12. Carry-forward Tax Losses ₹13,000 Cr

What they filed

Q1 FY27: revenue up 19.9%, net profit down 117.7% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue16,970 22,111 22,152 20,496 18,555 +9%23,472 +6%22,438 +1%24,584 +20%
EBITDA1,618 5,160 6,082 5,205 545 −66%5,353 +4%741 −88%3,211 −38%
Net profit-989 2,442 3,073 2,161 -2,614 −164%613 −75%-2,662 −187%-382 −118%
How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

Segment breakdown

  • Network
    28% International ASK Share— Direct Booking Share

Guidance & targets

Capacity

  • Q3 FY25 ASK Growth Capacity · Q3 FY25 · High confidence Early double digits YoY
    For the third quarter, we are expecting to add capacity in the early double digits as compared to the same period last year

    — Gaurav Negi

  • FY25 Full Year ASK Growth Capacity · FY25 · High confidence Early double digits
    we also remain firm on our full year guidance of early double digits capacity addition

    — Gaurav Negi

Revenue

  • Q3 FY25 PRASK Revenue · Q3 FY25 · Medium confidence Early to mid-single digit moderation YoY
    we are estimating early to mid-single digit moderation in passenger unit revenues for the third quarter

    — Gaurav Negi

Fleet

  • AOG Reduction Trajectory Fleet · Q1 FY26 · High confidence Sub-60 by CY24 end, mid-40s by FY26 start

    From Mid-70s peak today

    this number will start to trend further down and be in the mid-40s by the start of the next financial year

    — Gaurav Negi

Network

  • International Destinations Network · FY25 · High confidence 40 by end FY25
    These additions will take our international destinations to a total of 40 by the end of this year

    — Pieter Elbers

Risks & concerns

  • Peak AOG groundings at mid-70s driving expensive mitigation costs

    high

    23% YoY increase in CASK ex-fuel ex-forex primarily from AOG mitigation (damp leases at summer rates). OEM compensation doesn't fully offset costs. Management says corner has been turned with downward trajectory.

    Both acknowledged

  • Demand normalization from high FY24 base

    medium

    Post-election impact, heatwave effects, and general moderation from exceptional FY24 growth. International markets seeing increased competitive intensity from foreign airlines adding India capacity.

    Both acknowledged

  • Rising airport charges and fuel cost inflation

    medium

    Airport control period shifts driving rental increases. State VAT increases and oil marketing company charges pushing fuel CASK up 4% YoY despite lower benchmark prices. Congestion at major airports increasing fuel burn.

    Both acknowledged

  • Infrastructure constraints at Delhi and Mumbai limiting capacity growth

    medium

    40% of IndiGo flights touch Delhi and Mumbai. Infrastructure at these hubs will take time to match growth, impacting operational performance and capacity addition ability.

    Management acknowledged

Areas of evasion (2)

  • Precise breakdown of AOG vs inflationary CASK components
  • Exact AOG count within 60s range

Q&A highlights

2 direct
CASK breakdown between AOG-related and inflationary components Partial
A combination of AOG and mitigation measures has an offset sitting in other operating income... We are not completely getting an offset related to all these cost items

23% YoY CASK inflation driven by 3 factors: AOG costs, mitigation (damp leases), and structural inflation. OEM compensation doesn't fully offset, creating net drag on profitability.

Asked by Binay Singh (Morgan Stanley)

Demand normalization and competitive intensity in international markets Direct
there is a bit of a normalization. Last year was characterized by very high growth numbers. And this year, we see some normalization on a quarterly basis

Q2 domestic RPK growth at ~4% signals demand moderation from exceptional FY24 base; international yields under pressure from foreign airline capacity additions to India

Asked by Amyn Pirani (JPMorgan)

Digital strategy, direct bookings, and hotel ancillary revenue Direct
The number of direct bookings on our own web and app... we are in the high teens. That's a number which is still likely to go up going forward

Direct booking share in high teens vs global peers suggests significant room for improvement; hotel bookings 3 months old with encouraging early results but too early to quantify

Asked by Prateek Kumar (Jefferies)

2 min read 5 chapters

Detailed narrative

Q2 Loss Driven by Peak AOG Groundings and Seasonal Weakness

IndiGo reported a net loss of INR 990 crores in Q2 FY25 versus INR 190 crores profit in Q2 FY24. The loss was driven by peak AOG levels at mid-70s requiring expensive damp lease mitigation at summer rates, rising fuel costs from VAT increases and airport congestion, and seasonal demand moderation. Revenue grew 14.6% to INR 17,800 crores with PRASK up 2% but costs outpaced revenue growth.

AOG Corner Turned - Trajectory Now Declining

After 8 consecutive quarters of rising AOGs, IndiGo has turned the corner. Peak groundings of mid-70s in Q2 have declined to high-60s. Management expects sub-60 by calendar year end and mid-40s by FY26 start based on OEM guidance. Impact on profitability from costly mitigation measures will start moderating as short-term damp leases are returned in H1 FY26.

Strategic Launches Position IndiGo for Next Growth Phase

IndiGo launched BluChip loyalty program in October with strong initial sign-ups, and announced IndiGoStretch business class for Delhi-Mumbai starting November with 40+ aircraft across 12 metro routes by end CY2025. IndiGo Ventures received SEBI approval with INR 300 crores initial commitment. International network reached 28% ASK share with 2 new destinations and 5 more planned.

Cost Pressures from Multiple Sources

CASK ex-fuel ex-forex rose 23% YoY to INR 2.90 from three sources: AOG-related costs (groundings and damp leases), contractual escalations across line items, and airport charge inflation from new control periods. Fuel CASK increased 4% despite lower benchmarks due to state VAT increases, oil marketing company charges, and higher burn from airport congestion. OEM compensation partially offsets but does not fully cover AOG costs.

Demand Dynamics: Domestic Normalizing, International Competitive

Domestic demand normalized from exceptional FY24 base, impacted by elections, heatwave, and general slowdown. Load factor held at 83%, consistent with expectations. International markets witnessed increased competitive intensity from foreign airlines attracted to India's growth. October showed demand pickup from festive season. Management guided Q3 PRASK moderation of early to mid-single digits YoY against strong base.

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