Profit fall wipes out RM2.6b from IndiGo market value

New Delhi • IndiGo, India’s biggest airline, fell to the lowest in 16 months as rising fuel prices and a weaker rupee led to its worst-ever quarterly profit in a fiercely-competitive market.

The carrier said net income dropped 97% to 278 million rupees (RM16.68 million) in the three months through June, its worst quarterly result since listing in 2015.

That compared to the average analyst estimate of 5.1 billion rupees.

The stock slid 8.8% as of 2:45pm in Mumbai yesterday, the worst performing stock in the 26-member Bloomberg World Airline Index.

“The current revenue environment continues to remain weak particularly in the zero-15 day booking window,” co-founder and interim CEO Rahul Bhatia told analysts on a conference call on Monday.

“We do not believe that these fare levels are sustainable, especially given the increase in input costs.”

Taxes on jet fuel in India make it the most expensive in Asia and rising crude prices have only added to that pressure.

On top of that, a weakening rupee has added to expenses for airlines, which are still forced to sell tickets below-cost to attract an emerging middle-class flying for the first time.

IndiGo, Asia’s biggest budget airline by market capitalisation, slumped as much as 11.4% earlier, the lowest intraday level since March 16, 2017, and wiping out US$640 million (RM2.6 billion) from its market value.

Smaller rivals SpiceJet Ltd and Jet Airways India Ltd also fell in Mumbai trading.

“It is clear that the stock’s performance will depend critically on a reversal in the price trend,” SBICap Securities said in a research note.

“There is nothing on the horizon to indicate that is likely anytime soon.”

At least three brokerages downgraded the stock.

The airline may report losses in the second quarter with low visibility on near-term earnings, before a turn-around in the year ending March 30, 2020, Morgan Stanley analysts wrote in a research note, while recommending investors wait for a better entry point.

Bhatia said engine manufacturer Pratt & Whitney should be able to provide enough spare turbines to get its grounded Airbus SE A320neo jets flying this quarter, a problem which forced the airline to lease older planes that needed more regular shop visits.

Pratt is a part of United Technologies Corp.

“We remain cautiously optimistic and hope that these issues are resolved at the earliest,” Bhatia said on the conference call, while adding that he is “not happy about the situation”.

Things should improve “in the current quarter” as new turbines arrive, he said.

Durability issues with Pratt engines have been a headache since IndiGo took delivery of its first A320neo in 2016, causing delays and groundings that have forced the carrier to lease older, less-efficient jets.

That’s hurt margins already under pressure from fuel costs and the local fare war.

IndiGo, the biggest customer for the A320neo with 430 on order, said last week that “a few” new aircraft are still grounded and won’t fly until Pratt sends spare engines.

The carrier, operated by InterGlobe Aviation Ltd, had 36 neos out of a fleet of 169 aircraft at the end of the quarter. — Bloomberg