IndiGo Mulls Dollar Hedging, International Growth To Counter Forex Loss: CEO Pieter Elbers
InterGlobe Aviation’s Q3 profit witnessed 18.3% drop, primarily due to a foreign exchange loss of Rs 1,456.4 crore, despite strong underlying operational performance.
IndiGo operator InterGlobe Aviation Ltd. is planning to focus on dollar hedging and international expansion to counter foreign exchange volatility, as currency swings weighed on its financial performance in the third quarter.
That's the word coming from InterGlobe Aviation's Chief Executive Officer Pieter Elbers, who believes managing forex risk is key, given the strengthening dollar and its impact on the airline’s liabilities.
"We have a couple of strategies in place. One of them, clearly, is the hedging of dollars. The other one, importantly, and that links to one of the strategic priorities, is to further increase our international footprint," Elbers told NDTV Profit in an interview.
The comments come after the profit of India's largest airline operator fell 18.3% to Rs 2,448.8 crore over the previous year, according to an exchange filing on Friday. This was primarily due to the carrier incurring a foreign exchange loss of Rs 1,456.4 crore between October and December.
Elbers explained that the forex impact intensified in the latter part of the quarter due to accounting rules requiring the company to include all future liabilities in forex calculations. This resulted in significant swings in reported financials, even as IndiGo’s underlying operational performance remained strong.
Hedging dollars is a way for companies, including airlines, to protect themselves from volatile changes in currency values. They use contracts, like forward agreements, to fix exchange rates for future transactions. This helps reduce the risk of higher costs or lower earnings caused by currency changes.
For airlines like IndiGo, which fly internationally, hedging helps them manage costs such as fuel, foreign services, or debts in other currencies. It makes it easier to handle changes in exchange rates and their financial impact.
To mitigate such volatility, IndiGo is also increasing its share of revenue from foreign currencies by expanding its international operations. The airline’s overseas capacity now accounts for 28% of available seat kilometres, moving towards its 30% target.
"We see huge swings because of the forex there, but the underlying market and the underlying performance of the company really have been very, very strong," Elbers said.
Shares of IndiGo's parent company closed 0.7% higher at Rs 4,162.25 apiece on the NSE ahead of the results, as compared with a 0.5% decline in the benchmark Nifty.
