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IndiGo owner Q3 net profit falls 25 percent on high fuel costs, lower yields

NEW DELHI (Reuters) - InterGlobe Aviation, owner of India’s largest airline IndiGo, suffered its biggest fall in quarterly net profit, hit by high fuel costs and lower yields, as competition and the government’s demonetisation move put fares under pressure.

An IndiGo Airlines aircraft prepares to land as a man paddles his cycle rickshaw in Ahmedabad, India, October 26, 2015. REUTERS/Amit Dave/Files

Net profit for the October-December quarter fell 25 percent to 4.87 billion rupees ($71.8 million) compared with 6.5 billion rupees last year. Total income from operations rose 16 percent to 49.86 billion rupees.

Yields, a measure of fares and distance flown, fell 16 percent during the quarter, said Rohit Philip, the airline’s chief financial officer, adding that it expects yields to have fallen by 10 percent in January.

India’s air travel market has expanded rapidly in the last decade as it opened up to competition. Ticket prices were cut and the number of people wealthy enough to travel ballooned but airlines now face growing competition and rising oil prices.

The government aims to increase the number of passengers travelling on domestic flights to 300 million by 2022 from 80 million in 2015, and has introduced a scheme with subsidised fares to get people from smaller cities to start flying.

“We see robust traffic growth ahead and we will continue to grow and strengthen our network with a view to maximising our long term profitability,” company president Aditya Ghosh said in a statement to the stock exchanges on Tuesday.

IndiGo, which went public in November 2015, flies about one in three passengers in the world’s fastest-growing aviation market. The carrier plans to increase its fleet to 133 aircraft by the end of March from 126 aircraft at the end of December.

Available seat kilometre, a measure of an airline’s capacity, is expected to increase by 25 percent in the January-March quarter, the company said in a statement.


IndiGo’s operational performance during the quarter was affected by several factors including bad weather, congestion at main airports and issues with the Pratt & Whitney engines in its new A320neo narrow-body planes, Ghosh said.

Pratt & Whitney, a unit of United Technologies Corp, has encountered problems including slow engine startup times and erroneous engine software messages in the new engine, causing a delay in the delivery of planes to Indigo.

IndiGo has ordered a total of 430 A320neo aircraft, making it one of the European planemaker Airbus Group’s largest customers.

Ghosh said the new A320neo aircraft has reduced the fuel burn rate by about 15 percent but it is still facing operational issues with a high rate of replacement of the engines.

Fuel costs during the fiscal third quarter rose 43 percent to 16.71 billion rupees from the year ago period, InterGlobe said in its statement. During the quarter, global oil prices rose about 16 percent to $56.82 per barrel as of Dec. 30, Reuters data showed.

The airline’s yields were also impacted because of the government’s demonetisation move in November that rendered currency notes of 500 rupees and 1,000 rupees illegal tender, pulling about 86 percent of total money out of circulation.

($1 = 67.8500 rupees)

Reporting by Aditi Shah, additional reporting by Gaurav Dogra in Bengaluru; Editing by Keith Weir