IndiGo would replace the industry’s traditional sale-and-leaseback model for aircraft financing with outright purchases for some of its future fleet additions, underscoring the focus on cutting total ownerships expenses by the low-cost airline that Monday posted the biggest-ever quarterly profit in Indian aviation.
The adoption of the new business model, according to senior executives at the country’s largest carrier, would help IndiGo lower overall costs of fleet ownership. ET had reported six days ago that an imminent change in global accounting standards will, among other things, impact IndiGo’s aircraft lease rental strategy the most, and said that the new norms may prompt carriers to making outright purchases.
Chief financial officer Rohit Philip said IndiGo will shift to a model of outright purchase. Aircraft kept in the fleet for long are better owned than leased as direct ownership leads to cost optimisation, he said.
IndiGo on Monday announced a net profit of Rs 812 crore for April-June, up 37% from Rs 592 crore a year earlier, aided by lower finance costs and increased yields. Sydney-based consultant CAPA Centre for Aviation called it the highest quarterly profit by any airline in India and said reported profit beat its estimates of Rs 700 crore.
Sales in the June quarter soared 25% to Rs 5,956 crore. The airline’s yields increased 2.2%. In a conference call with analysts, chief financial officer Rohit Philip said IndiGo’s yields in the April-June quarter last year were hit as it didn’t go for aggressive price cuts.
IndiGo’s revenue per available seat kilometre (RASK) increased by 5.5%. The airline’s cost per available seat kilometre (CASK) increased by 1.3% but the costs excluding fuel decreased 2.5%, primarily due to a 34% fall in finance costs.
Analysts have typically attributed IndiGo’s robust earnings and cash-flow also to smartly crafted aircraft orders and sale and leaseback deals.
Voluminous orders have given it heavy discounts on asset prices and maintenance rates. Conversely, short sale and leaseback agreements have ensured that aircraft are phased out before they get too old.
