(Bloomberg) – IndiGo, India’s biggest airline, is expecting to raise ticket prices as it works toward becoming profitable amid rising fuel expenses, which dragged the airline back into a loss in the fourth quarter.
“Profitability is on top of our minds,” Chief Executive Officer Ronojoy Dutta said in an earnings call, adding hitting the sweet spot in ticket prices is a balancing act given that demand will drop if IndiGo keeps pushing up fares, he said. “There is a tug of war going on between very good revenue performance and very challenging fuel.”
The carrier, operated by InterGlobe Aviation Ltd., posted a loss of 16.8 billion rupees ($217 million) in the three months through March, according to an exchange filing Wednesday. The average estimate from analysts tracked by Bloomberg was for a loss of 8.3 billion rupees. It also marks a setback for the airline that reported a surprise profit of 1.3 billion rupees in the preceding quarter.
Revenue rose 29% from the same quarter last year to 80.2 billion rupees, while total costs jumped 32% from a year earlier to 98.9 billion rupees. Fuel costs surged 69% in the latest quarter, the filing said.
The emergence of the highly-transmissible omicron Covid-19 variant in India upended a nascent recovery that the aviation sector was witnessing in the second half of 2021 following a deadly delta-led outbreak in April and May last year. Credit rating firm ICRA Ltd. estimates that India’s airlines lost $3.4 billion in the year through March.
“This quarter has been difficult because of the demand destruction caused by the omicron virus in the first half,” Dutta said in a statement Wednesday. “Although traffic rebounded and demand was robust during the latter half of the quarter, we were challenged by high fuel costs and a weakening rupee.”
As IndiGo seeks to return to profitability, it will focus on maintaining its cost leadership position and building the most-efficient network in the region, Dutta said. IndiGo expects capacity to increase by as much as 60% in the year ended March 2023 and by 150% in the ongoing June quarter compared to a year earlier.
Domestic air traffic in January-March climbed 6% to 24.8 million passengers from a year earlier, and authorities expect traffic to surpass pre-pandemic levels of 415,000 daily passengers within a year. With international flights resuming, airlines are also adding back capacity and enhancing services.
IndiGo had 182.3 billion rupees of cash and 368.8 billion rupees of total debt as of March 31. The revenue passenger per kilometer climbed 12.8% from a year earlier. IndiGo’s fleet comprised 275 aircraft as of March 31, a net reduction of 8 aircraft during the quarter.
Several top-level executives have left the airline since billionaire co-founder Rahul Bhatia was appointed to a newly-created executive role of managing director in February. Fellow co-founder Rakesh Gangwal resigned from the airline’s board, as part of an agreement between the two.
IndiGo earlier this month said Dutta will step down on Sept. 30, and Pieter Elbers, chief of Air France-KLM’s Dutch unit, will replace him. Chief Commercial Officer Willy Boulter and finance chief Jiten Chopra have also left in recent months.
Dutta’s resignation was expected as he and Bhatia had a difference of opinion in how to grow the airline, Mark Martin, founder of Dubai-based Martin Consulting LLC said earlier in May. Bhatia will be taking point on IndiGo’s strategy and direction as he is well-versed in the Indian aviation market, while the new chief executive’s job will be more about managing the carrier, Martin said.