Rahul Bhatia led IndiGo profit in tailspin at 97%; this is what is to blame

Rahul Bhatia led IndiGo, country’s largest airline, on Monday reported a 96.6% plunge in its net profit at Rs 27.8 crore for the quarter ending June 30, 2018. The airline’s management blamed higher fuel and aircraft maintenance costs, volatility in foreign exchange and intense competition as the prime reasons for the fall in profit.

However, sales from operations rose 13.2% to Rs 651.20 crore, the airline said in a regulatory filing. Total expenses jumped 40.5% on year to Rs 678.70 crore, while fuel cost shot up by 54.5% to Rs 271.56 crore. Besides, yield or average ticket price dropped to Rs 3.62 per kilometre in June quarter from Rs 3.83 per km a year ago.

Terming the current airfares “unsustainable” due to rising input costs, Rahul Bhatia, co-founder and interim chief executive officer, IndiGo, said during an analyst call that the company will focus on “long-term” strategies, adding that though there is a lot of pressure in terms of yields, the company is prepared to take on the competition.

Bhatia said that the real challenge is the low yields in the “15 days prior” to flight bookings, which have gone down due to the competition. According to the experts, the last 15 days’ bookings, which constitutes around 40% of the total ticket sales, are mainly done by the business sectors which are rather not prone to the price sensitivity as compared to the individual fliers or families.

DNA Money had in its June 7 edition reported how the airlines were unlikely to pass on the increase in fuel prices to the fliers.

Watch this Zee Business video here:

Another senior company executive said “something” has to change when asked whether he sees the airlines rationalising the capacities to counter the falling yields and lower fares.

Another important expenditure in the quarter was on account of sending some of the leased aircraft to maintenance shops. The company had earlier extended the lease of some of its aircraft due to delays in acquiring the new planes it had ordered with manufacturer Airbus.

This resulted in the airline having to send some of its older leased aircraft for maintenance. The expenditure arising out of it shows starkly because such maintenance cost was much lower in the comparative quarter last year, the airline executives added.

Source: DNA Money

(With inputs from PTI)