IndiGo quarterly profit drops as demand slows, fuel costs surge

India’s largest airline IndiGo posted a 12% drop in its quarterly profit weighed down by slowing demand as well as surging engine-related and fuel costs. Analysts were expecting a steeper drop.

Gurugram-based Interglobe Aviation Ltd.’s net income fell to 27.3 billion rupees ($326 million) in the three months ended June 30, compared with a record 30.9 billion rupees a year earlier, IndiGo said in a statement Friday. While this is airline’s first profit decline in seven quarters, the profit still exceeded the average analyst estimate of 25.03 billion rupees based on data compiled by Bloomberg.

Revenue rose 17% to 195.71 billion rupees from a year earlier, beating estimates. Total costs climbed 24% to 174.45 billion rupees and fuel costs increased 23%, while airfares for the airline remained flat amid weaker demand. 

Its passenger load factor fell to 86.7% from 88.6% in the same quarter last year. The carrier had benefited from insolvent Go Airlines India Ltd.’s grounding last year, which had bolstered its airfares and load factor.

IndiGo sees capacity for the quarter ending Sept. 30 increasing by “high single digits” compared to a year ago, it said in a post-earnings release. 

The profit drop comes in a period of increased change for India’s airline industry. Air India, IndiGo’s biggest competitor, is in the middle of an ambitious merger with Tata and Singapore Airlines Ltd.-owned Vistara, to create an entity rivaling IndiGo.

The budget carrier has also announced plans to introduce a “product” for business fliers, and has ordered 30 Airbus A350-900 planes to begin international longhaul travel — a market that is dominated by Air India.

IndiGo’s domestic market share inched higher to 61% in the quarter, according to data from India’s aviation regulator. It carried 24.5 million passengers in the three months ending June 30, up 5% from last year.

Its shares gained 19.2% in the quarter, beating benchmark Nifty 50 index which rose 7.5%.