IndiGo Expects No Growth In Q3 As Slowdown Hurts; Capacity Expansion Slows

India’s largest airline doesn’t expect its unit revenue to grow in the ongoing quarter as a slowing economy forced people to cut travel during the festival period. And delayed delivery of fuel-efficient aircraft is expected to hurt profit.

IndiGo, operated by InterGlobe Aviation Ltd., is witnessing subdued revenue growth during the festive season, the carrier’s management in its second-quarter earnings call. October is a month of festive travel and airlines usually don’t offer discounts as demand rises. This time it is “unusual”, Ronojoy Dutta, chief executive officer at InterGlobe Aviation, said. Rivals are offering discounts, which shows there are signs of weakness, he said.

For the quarter ending December, the company cut its growth guidance for revenue per available seat kilometre—a measure of an airline’s efficiency—from 5 percent to nil. That’s because yields—average fare per passenger per kilometre—declined on metro routes, the management said.

That comes when benefit from the shutdown of Jet Airways India Ltd. has waned. Grounding of Naresh Goyal-led carrier bumped up revenues for three quarters, reviving growth for the industry that struggled to increase fares because of competition. The consumption slowdown is catching up.

Indians have cut spending on biscuits to cars because of lack of jobs, stagnant wages and liquidity shortage caused by a non-bank lending crisis, dragging GDP growth to its lowest in six years. They are now cutting back on travel.

This is the bigger concern for InidGo along with slower capacity addition even as the carrier that reported its worst quarterly loss in the three months through September because of rupee depreciation and higher maintenance costs.

Aircraft Delivery Delays

IndiGo cut its capacity growth guidance from 30 percent to 25 percent for the year ending March because of delays in delivery of fuel-efficient Airbus 320 Neo aircraft. It could be even lower, the management said. More than half of IndiGo’s fleet comprises the older A320ceo planes.

In the second quarter ended September, the company’s capacity rose 24 percent, four percentage points lower than the guidance; in the third quarter, it expects growth of 22 percent. The delays pushed up the company’s maintenance cost by Rs 319 crore in the second quarter.