IndiGo is worst airline stock after profit drops 97% to $4 mn in 3 months

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, operated by InterGlobe Aviation, said profit dropped 97% to $4mn in the three months through June, its worst quarterly result since listing in 2015. That compared with the average analyst estimate of Rs 5.10 billion. The stock slid 9.3% as of 10:30AM in Mumbai, the worst performing stock in the 26-member Bloomberg World Airline Index.

“The current revenue environment continues to remain weak particularly in the 0-15 day booking window,” co-founder and interim Chief Executive Officer Rahul Bhatia told analysts on a conference call 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 capitalization, slumped as much as 11.4% earlier, the lowest intraday level since March 16, 2017. Smaller rivals SpiceJet and Jet Airways India 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.”

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.

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