IndiGo Q1 results preview: Airline meets guidance on capacity; can it exceed record Q1FY24 profits?

IndiGo, the largest carrier in India, will declare its Q1-FY25 results on Friday, July 26. This comes after two challenging situations in recent times: the collapse of the roof at Delhi airport leading to cancellations and shifting to another terminal, and the impact of global outage of Microsoft services. While the terminal impact is ongoing and started in Q1, the outage impact, if any, will be seen in Q2 results.

The airline improved its domestic market share over the previous quarter, closing the quarter with 61 per cent domestic market share, which is 0.3 per cent higher than the same quarter last year and 0.7 per cent higher than the previous quarter.

Maintains guidance on capacity, but trailed industry on a few counts

Over the last few years, IndiGo has moved from guidance in terms of fleet induction or flights to capacity by ASK (Available Seat Kilometres). This time, the guidance was for a 10-12 per cent growth over the corresponding quarter last year, when the airline saw 32.6 billion ASKs being deployed. The airline closed Q1-FY25 with 36.2 billion ASKs, a growth of 11 per cent in line with the guidance.

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Compared to Q1-FY24, IndiGo has seen a growth of 8 per cent in domestic departures and 18.5 per cent in international departures in Q1-FY25. In capacity by ASK, the growth was 6.9 per cent in domestic capacity and a massive 24.62 per cent in international, in line with its focus on international network.

Departures grew 5.9 per cent on domestic and 14.8 per cent on international, while passengers saw a growth of 4.1 per cent on domestic and 24.7 per cent on international. The industry saw a 9 per cent increase in capacity by ASK, while IndiGo’s growth was only 7 per cent. Likewise, the international passenger numbers could not increase at the same pace as what the industry did or in line with the capacity that the airline deployed.

What will the finances reflect?

The revenue will depend a lot on the compensation from Pratt & Whitney which the airline showcased as revenue in the last quarter. The airline has time and again refused to share the exact amount arising from the compensation for lost revenue due to grounding.

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After a record year of profit, the airline starts with a fresh slate and the benchmark is its best-ever profit of ₹3,089 crore in Q1-FY24. The additional passengers and compensation could well ensure that the number is crossed and the airline gets ready for its 18th birthday in style. The airline is still ₹4,138 crore in the negative since the start of COVID, though the last year was a record one with profits of over ₹8,000 crore.

The airline had crossed a total income of ₹20,000 crore in Q3-FY24, which was a first. With Q1 being one of the top quarters by performance, elections and extreme heat have muted revenue of other allied industries like hospitality. A profit looks certain but beating Q1-FY24 numbers looks uncertain. Overall this will be the seventh straight quarter of profits.

What to watch out for?

The airline celebrates its 18th birthday in the next fortnight. At 18, the airline is further changing itself with business class, a loyalty programme and widebody aircraft entering service three years down the line. Will the management outline the leased MAX 8 operations? After many false starts, it now looks as if the Qatar Airways MAX 8 will enter service with IndiGo on a damp lease, an arrangement which is similar to Turkish Airlines - where the planes are restricted to a certain route, unlike other A320s which are on damp lease and operate across the network.

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IndiGo’s fleet renewal plan has taken a beating, and while in normal circumstances it would have gotten rid of all A320ceos by now, it continues to induct them at regular intervals. The airline has not had industry-leading load factors and its famed ‘on-time performance’ has taken a backseat. The gap between capacity addition by the airline and the corresponding growth in passenger numbers flying IndiGo is a sign of worry and shows up in the load factors. The results will tell if this is done to avoid discounting and continue with firm yields or there is a slippage in yields. Airlines the world over have started to show signs of softening demand and Asia Pacific sees it a little late in the cycle, is the airline seeing the same and is it prepared for the same?