India’s largest low-cost airline is likely to wrap up FY24 with a record profit of INR7,200 crore-INR8,300 crore – the best in the country’s aviation history. At a gathering of top airline executives in Istanbul in 2008, Jet Airways’ founder Naresh Goyal appeared to be an unhappy man. The Mumbai-based low-cost airline had swung into a net loss of INR654 crore in FY08, hurt by high fuel prices and intensifying competition in India’s civil aviation industry, and the travel agent-turned aviation czar was expecting more turbulence ahead.
“What is low-cost? There is nothing like low-cost in India. There is no alternative airport or secondary airport. In Dubai, they are creating a separate terminal in Jebel Ali for low-cost carriers — that is [the basis of] low cost,” he had said, adding, “Here [in India], everybody is using the same airport, paying the same navigation and landing fees….”
Nearly a decade-and-a-half since that statement, Goyal, now behind bars on money laundering charges, maybe awestruck when India’s biggest low-cost carrier IndiGo announces its Q4FY24 numbers in the coming weeks. As the Gurugram-based airline which carries nearly two-thirds of the country’s air travellers is set to create history with its latest report card, ET Prime takes a deep dive to understand what it means for the world’s third-largest and fastest-growing aviation market.
A milestone
India’s largest low-cost airline is expected to record a profit of INR900 crore-INR2,400 crore in the quarter-ended March 31, 2024, as against the INR900 crore it reported in the corresponding year-ago period. This means that IndiGo, which has earned INR6,300 crore in net profits for the first nine months of the fiscal, is likely to wrap up FY24 with a record profit of INR7,200 crore-INR8,700 crore. In other words, the airline may touch the magical USD1 billion-mark in net profit – a first in India’s aviation history.
“I think IndiGo’s FY24 net profit could be around USD1 billion. In the March quarter, capacity was down 1% and airfares were up 5% on a year-on-year basis. Moreover, there was relief in the form of lower crude oil prices,” said Gagan Dixit, senior vice-president, Elara Capital.
For perspective, Jet Airways’ biggest profit during its 25 years of existence was around INR1,200 crore in FY16 when it was the market leader. While the profitable fiscal following eight consecutive years of losses came as a ray of hope for the airline, it landed in the bankruptcy courts in 2019 after running out of cash.
Even as the new market leader’s record profit will be an encouraging sign for the industry, the Air India group (including Vistara and Air India Express) which has been spending millions on a potential turnaround since the privatisation of the Maharaja in 2022, is expected to post a loss of around INR10,000 crore-INR11,000 crore (around USD1.3 billion at the higher end of the estimate) in FY24, said an aviation analyst who did not want to be named. It reported a loss of INR12,700 crore in FY23.
Meanwhile, Dixit, who is among the few analysts who track cash-strapped SpiceJet, expects the airline to post a profit of around INR200 crore in Q4FY24 compared with INR17 crore in the corresponding year-ago quarter.
Interestingly, SpiceJet, which reported a loss of INR431 crore in Q2FY24 and a profit of INR204 crore in Q1FY24, is yet to release the numbers for the third quarter of the fiscal gone by. Without explaining the reason behind the delay, a SpiceJet spokesperson told ET Prime that the airline will simultaneously announce the results for both quarters towards the end of this month.
However, according to a SpiceJet executive, the delay may be partly due to the airline’s intent to show all the settlements it is stitching with various vendors to which it owes millions of dollars, in a bid to make its balance sheet look healthier.
While the FY24 forecasts for airlines are encouraging, does it mean that the worst is behind them?
Global trend
After accumulating losses to the tune of INR12,000 crore for three fiscal years (2020-2023) during the pandemic, IndiGo’s net worth had slipped into the negative territory, hurting its business plans. For example, its plan to operationalise its aircraft-leasing unit at Gujarat’s GIFT City is still stuck with the Reserve Bank of India while the Tata Group and Singapore Airlines-backed Air India has not only gone ahead and started its unit but also financed six Airbus A350s from the same.
In Q2FY24, IndiGo was largely expected to report a loss in what is a seasonally weak quarter. But the airline surprised the Street with a profit of INR190 crore led by a one-off “reversal” in provision of airport fees and receipt of compensation benefits from original equipment manufacturers like Pratt & Whitney relating to aircraft on ground (AoG).
In January, CEO Pieter Elbers emphasised, “With these five consecutive quarters of profit, we continue to recover from the losses of Covid and have now become net-worth positive again”.
To be sure, IndiGo’s windfall profits is not a trend-defying achievement when seen from a larger perspective. Globally, airlines have been posting record profits on the back of revenge travel in the post-pandemic era.
For instance, British Airways’ parent International Airlines Group declared a six-fold jump in net profit in 2023 to nearly USD3 billion while in the US, Delta Air Line’s profit, too, jumped fourfold from to USD4.6 billion from a year-ago period.
According to the International Transportation Association (IATA), whose members control over 80% of the air-passenger traffic, global airlines’ cumulative profits are expected to be around USD23 billion in 2023, compared with net losses of around USD7 billion in 2022. As per IATA’s estimates, profitability is seen further improving to USD26 billion in 2024.
But analysts are still apprehensive about IndiGo’s future profitability as they don’t believe that the party will continue for long. Dixit has a “sell” call on IndiGo’s stock with a target price of INR3,100 compared, representing an 18% downside from Wednesday’s closing price of INR3,800. IndiGo became the third largest airline globally by market capitalisation on Wednesday as its shares surged nearly 5%. At USD17.5 billion, it is behind only Delta Air Line’s USD30.4 billion market capitalisation and Ryanair’s USD26.5 billion. IndiGo shares have jumped 28% this calendar year so far, while the BSE’s benchmark 30-share Sensex has gained around 4% during the same period.
“I have a sell call because I think the first half of this fiscal will be good, but in the second half, there will be a lot of capacity coming in since Air India has added 10 planes every month for the last four months, and this number will go up further. With Air India adding 25% capacity, airfares will go down, and IndiGo’s market share and profits could come down,” Dixit said.
The final cut
Circling back, Jet Airways’ founder Goyal had also said at the gathering in Istanbul that “We should all have our heads examined in the [Indian] airline industry" for selling cheaper, below-cost air tickets.
With Rahul Bhatia and Rakesh Gangwal’s IndiGo kissing the USD1-billion milestone in net profit and a record market capitalisation of USD17.5 billion, Goyal’s view on low-cost airlines could be proven wrong soon. And much to the relief of many airline founders in the country, including new entrants, their “heads” need not be “examined” anymore.
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