IndiGo says Q3, Q4 profit largely compensated for losses in past two quarters: Key factors that aided airline's earnings

InterGlobe Aviation – which owns and operates the IndiGo airline – clocked a second straight quarter of profit as it reported a set of financial results for the March quarter that were better than analysts' estimates. The airline said its profit in two back-to-back quarters largely compensated for losses in the past two quarters.

The quarterly net profit of IndiGo – India’s largest airline in terms of market share – was the highest-ever in the January-March period, driven by a combination of factors.

From easing fuel prices to strong demand for air travel, here's a summary of key factors that aided the company's profitability:

Easing crude oil rates: Crude oil prices have halved to $75-70 levels from their recent peak. In March 2022, benchmark Brent had hit a 14-month high of $139 a barrel. per barrel. Softening of global benchmark oil prices has led to lower prices of air turbine fuel (ATF) or jet fuel.

Better air traffic: The domestic aviation industry continues to witness recovery with air passenger traffic logging around 60 per growth to 13.6 crore in 2022-23 annually. Improving international traffic also aided the company's profitability.

Better Yield: IndiGo’s yield – a key measure of an airline's profitability determining the amount of money generated per passenger per kilometre improved by 10.2 per cent to Rs 4.85 and for the quarter ended March 2023 compared with the corresponding period a year ago.

Healthy load factor: The company’s passenger load factor improved by 7.5 percentage points to 84.2 per cent for the March quarter.

Favourable currency: Besides, favourable forex rates aided the airline's profitability. The rupee eased 0.7 per cent against the US dollar in the March quarter.

IndiGo Q4 results

IndiGo's net profit for the March quarter came in at Rs 919.2 crore and revenue at Rs 14,160.6 crore, according to a regulatory filing.  According to Zee Business research, IndiGo's net profit was estimated at Rs 872.9 crore and revenue at Rs 13,736.4 crore.

The airline had registered two quarterly losses, for the July-September and April-June periods primarily owing to multiple headwinds such as the COVID-related impact on demand.

How analysts view the path ahead for IndiGo

Analysts say the aviation industry entered a phase of recovery following lower demand on account of the pandemic till the end of financial year 2021-22. The industry has enjoyed strong passenger traffic since.

A majority of brokerages are upbeat on IndiGo as most analysts believe the airline is likely to continue its growth momentum in the coming quarters.

JPMorgan and Morgan Stanley each have an ‘overweight’ rating whereas Citi and Goldman Sachs each have a ‘buy’ call on IndiGo.

“We believe that IndiGo’s strong cash position would help in sustaining its market share along with pricing power, going forward, which would drive its overall profitability,” said Mitul Shah, Research Analyst at Reliance Securities.

The rising yield, pricing discipline, and falling crude prices would support the turnaround for the airline despite other cost inflation, the analyst added.

Reliance Securities reiterated a ‘buy’ call with a target price of Rs 2,750 apiece.