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    Interglobe Aviat

    INDIGOMixed
    Services·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

    8

    • 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

    1

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

    What Changed1

    vs Q3 FY25

    Tone shiftGood → Mixed

    Key financials

    Single quarter

    12 metrics
    1. 01Total Income₹17,800 Cr+14.6%YoY
    2. 02Net Loss₹-990 Cr
    3. 03Net Profit Margin-5.8%
    4. 04RASK₹4.45+5%YoY
    5. 05PRASK₹3.76+2%YoY

    Segment breakdown

    Network
    28% International ASK Share— Direct Booking Share
    List

    Guidance & targets

    5
    CategoryTargetPriority
    Capacity
    Q3 FY25 ASK Growth
    Early double digits YoY
    		High
    Capacity
    FY25 Full Year ASK Growth
    Early double digits
    		High
    Revenue
    Q3 FY25 PRASK
    Early to mid-single digit moderation YoY
    		Medium
    Fleet
    AOG Reduction Trajectory
    Sub-60 by CY24 end, mid-40s by FY26 start
    		High
    Network
    International Destinations
    40 by end FY25
    		High

    Risks & concerns

    6
    RiskSeverity

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

    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

    high

    Demand normalization from high FY24 base

    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

    medium

    Rising airport charges and fuel cost inflation

    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

    medium

    Infrastructure constraints at Delhi and Mumbai limiting capacity growth

    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

    medium

    Areas of Evasion(2)

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

    Q&A highlights

    3

    “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)

    2 min read5 chapters

    Detailed Narrative

    01

    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.

    02

    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.

    03

    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.

    04

    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.

    05

    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.

    This is an AI-generated summary of a publicly available earnings call transcript. It is for informational purposes only and does not constitute investment advice, a recommendation, or an endorsement. inve.money is not a SEBI-registered investment advisor. Please consult a qualified financial advisor before making any investment decisions.