InterGlobe Aviation, owner of India`s IndiGo airlines, reported a record quarterly profit on Monday powered by growth in passenger revenue but warned that delays in deliveries of Airbus`s new A320neo aircraft was affecting margins.
IndiGo is among several carriers facing delays in receiving planes from Airbus due to problems with new engines supplied by United Technologies` Pratt & Whitney, which has also forced India`s biggest airline to ground as many as nine planes.
"While we do receive certain compensation from Pratt & Whitney for these groundings, the operational disruptions are quite challenging," InterGlobe president Aditya Ghosh said during a call with analysts after reporting first-quarter results.
Ghosh said that it may take about a year before Pratt & Whitney makes design changes to solve the problem and it has therefore asked the company to increase the availability of spare engines.
Low-cost carrier IndiGo has expanded rapidly since its launch in 2006 and now flies four of every 10 passengers on India`s domestic routes.
The airline expected to have 36 A320neos in its fleet by now but only has 22, said Rohit Philip, IndiGo`s chief financial officer, adding that to make up for the shortfall it has taken used A320 aircraft on short-term leases.
This has increased the airline`s operating cost because of higher maintenance costs and a higher fuel burn rate as compared with the A320neos, Philip said.
InterGlobe`s profit rose 37 percent to 8.11 billion rupees ($126.35 million) in the three months ended June 30 from a year earlier, helped by a 27.9 percent growth in passenger revenue.
IndiGo`s revenue per available seat kilometre rose 5.5 percent to 3.82 rupees while its average fare yield, as measured by revenue per passenger carried and kilometre flown, rose 2 percent to 3.83 rupees - the highest in six quarters.
InterGlobe said it expected capacity to grow at a compound annual growth rate of about 20 percent for 2018 to 2020.
IndiGo is also planning a shift in its fleet acquisition strategy and will look at owning some planes while reducing the use of short-term sale and leasebacks. The company plans to use internal funds and some debt for purchases.
"Over the longer term, owning an aircraft tends to have a lower ownership cost than leased planes," Philip said, adding that this will reduce IndiGo`s operating cost.
A new unified goods and services tax has also influenced IndiGo`s decision to own rather than lease planes.
IndiGo, which has expressed an interest in buying state-owned carrier Air India`s international arm and low-cost division, also plans to start flying smaller planes to second-tier towns and cities later this year.
In May it said it has placed a provisional order for 50 ATR 72-600 aircraft from European turboprop maker ATR, worth over $1.3 billion at list price.
($1 = 64.1850 Indian rupees)