IndiGo’s take off is not without hurdles

The resumption of international travel after two-year intervals means that the financial year 2023 has begun in a good way for InterGlobe Aviation Ltd, which operates the airline IndiGo, India’s largest. The airline has announced that it will restart its regular international flights on more than 150 routes from April, which were previously operated under air bubbles.

As such, the company has gained international market shares. Analyst at ICICI Securities Ltd. said in a report dated March 29: “Data up to December 2021 showed a consistent improvement in Indigo’s international market share from 17% in June 2020 to 31% in December 2021, which was very close to the February 2020 high of 32%.”

With declining covid cases and a pent-up demand for travel, the domestic aviation industry will benefit as passenger traffic would recover. February saw a recovery and March is also set for a strong recovery. “Indicative passenger traffic for March 2022 indicates a further improvement of about 40% from month to month to 10.6 million. Daily passenger data for March 2022 have averaged ~ 0.34 million, indicating a recovery of about 88% of levels before the pandemic “, said analysts at JM Financial Institutional Securities Ltd in a March 31 report.

In February, when the Omicron-led curbs eased during the latter part of the month, passengers carried by domestic airlines increased by 20% respectively to 7.7 million, according to data published by the Directorate-General for Civil Aviation. All major airlines saw a sequential increase in cabin factor (PLF) in February. IndiGo’s PLF increased to 85.2% from 66.6% in January.

Still, not everything is hunky dory. Rising prices for aviation fuel (ATF) will continue to pose a threat to margins as aviation fuel accounts for a significant part of operating costs. “ATF prices continue to be high and have increased by 83% on an annual basis and 16% sequentially to an average of Rs 90,700 / kl. Airlines have taken a significant price increase to compensate for the sharp increase in ATF prices,” added JM Financial Report.

At the same time, with increasing competition in the industry, IndiGo lost market share in February by 420 basis points (bps) sequentially to 51% while Tata-owned airlines such as Air India, Air Asia and Vistara took market shares sequentially by 90 bps, 120 bps and 220 bps respectively. A base point is one hundredth of a point.

Given this background and high fuel prices, IndiGo shares are likely to remain under pressure. The airline’s shares have risen by 23% over the past year but have fallen by 2% during the calendar year 2022 so far.

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