InterGlobe Aviation Loses Half Of Its Market Cap Second Time In Three Years
Shares of IndiGo have fallen by half second time in three years since listing.
InterGlobe Aviation Ltd. has lost half of its market value second time in three years since listing. Both times the reasons were the same.
On Oct. 9, shares of the country’s largest and most profitable airline tumbled more than 50 percent from its peak to trade at Rs 724 apiece. Earlier, the scrip had slumped 46 percent in the first 45 days of 2016.
What Led To The Stock’s Downfall
Lower Yields
IndiGo, in 2016 after listing, announced its September and December quarters together. The decline in the airline’s yield in both quarters surprised investors. Yield, used to measure average earnings, had fallen as the airline cut ticket prices due to lower passenger volumes.
This year, too, a fall in yield contributed to the decline in the company’s profitability and impacted share prices. In the previous two quarters, IndiGo’s yield fell at least 5 percent from last year on lower ticket prices.
Cost Structure
IndiGo, which has the leanest cost structure, has seen an increase in its expenses, excluding fuel, barring only four occasions. The costs rose mainly due to inflation, depreciating rupee and rising employee and maintenance costs.
The increase in cost, however, was higher than its two listed peers—SpiceJet Ltd. and Jet Airways (India) Ltd.—impacting its share prices.
A320neo Fleet
The Airbus A320neo, which was expected to be a game changer for IndiGo, impacted the company’s financials both in 2016 and 2018.
In 2016, a delay in the delivery of A320neo had been a drag on its financials. IndiGo had invested in staff and other overheads in anticipation of higher capacity, which didn’t materialise. The airline had cited “industrial reasons” of the European plane maker as the reason for the delay.
Now not only engine issues related to A320neo delayed its delivery, but also forced the airline to ground some of its planes. To make up for this shortfall, IndiGo started leasing older aircraft from the secondary market which had higher operating costs.
A weakening rupee, higher crude oil prices and exit of President Aditya Ghosh and Chief Commercial Officer Sanjay Kumar impacted the shares of the parent of budget carrier IndiGo this year. The rupee depreciated nearly 16 percent against the dollar and Brent crude surged 27 percent so far this year, adding to the cost pressures of the company.