Rupee fall, unrelenting fuel price hike send IndiGo into a tailspin

Airline sees first ever loss at Rs. 652.1 cr.
The unrelenting increase in fuel prices, along with the tumbling rupee in a quarter that typically sees weak demand from air-travellers, has led to IndiGo recording its first-ever loss at Rs. 652.1 crore for the quarter ended September. The airline, with a market share of more than 42%, reported a profit of Rs. 551.6 crore during the same period last year. The airline earned revenue of Rs. 6,514.2 crore in the second quarter, an increase of 18.3%. However, its expenses rose to Rs. 7,502.2 crore — a jump of 58%. Of its total expenditure, fuel expenses accounted for Rs. 3,035.4 crore, nearly doubling from the second quarter of last year. The airline said that the rise in fuel prices accounted for more than half of the total decline in its profitability and the remaining due to currency depreciation and lower fares. “Fuel constitutes 40% of out total costs and about 50% of our cost excluding fuel is denominated in foreign currency. Typically, in the airline industry, you would expect higher airfares to cover up the increase in costs. However, this has not happened yet. This has significantly impacted our profitability,” IndiGo co-founder and CEO Rahul Bhatia said. However, the airline has a total cash balance of Rs. 13,163.7 crore comprising Rs. 4,417.5 crore of free cash and Rs. 8,746.2 crore of restricted cash. Its debt is related to aircraft purchase and is at Rs. 2,641.1 crore. Despite slipping into the red, the airline is determined to scale up its capacity and is expected to see an increase of 35% in terms of available seat kilometres, with Airbus ramping up deliveries of A320 neos. “Increase in costs by 24% and drop in yields by 10% indicate very tough trading conditions and inability to control market dynamics. Unlikely to see near term correction at this stage with the possibility of higher oil prices post November 4 is expected to trigger another industry downside,” Kapil Kaul, CEO & Director, CAPA South Asia On whether the airline would be open to acquiring another airline, Mr. Bhatia remained non-committal. “Will look at it opportunistically… if it is too good a deal to say no to. We will have to measure it against what that is more beneficial for us or should we just build our business organically,” he said.
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