Second Quarter Financial Results of IndiGo

The second quarter financial results of the fiscal year 2018-2019 declared by IndiGo, reveals a net loss of 652.1 crore and highlights the challenges facing Indian aviation. Incidentally, this is the first time since its listing in the public markets that IndiGo has reported a loss of 652.1 crore and it is fair to say that all airlines will report losses for this quarter. Fuel, as a cost item, now is 40 per cent of the cost base for the entire industry. The fuel cost rose by a whopping 84.3 per cent compared to the same quarter last year. To add to this, the rupee fell against the dollar further affecting cost. These costs can be passed on to consumers via a fuel surcharge. However, IndiGo was not successful in doing so as competitors did not levy this charge. Thus there is a situation where costs are rising; but fares are not rising in the same proportion and this has a direct effect on airline margins.

The rupee weakness further added to IndiGo’s price pressures. 50 per cent of IndiGo’s costs are denominated in dollars. Thus any change in the exchange rate has an impact on cash-outflows. Given the size of IndiGo and the model where majority of aircraft are leased with payment in US dollars, the rupee weakness adds to the cash-outflows of IndiGo. This is reflected in the mark-to-market adjustments where IndiGo reported a 340 crore loss on foreign exchange.