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InterGlobe Aviation Ltd’s shares have declined by 10% so far in the calendar year 2022. InterGlobe runs the IndiGo airline.

True, the subdued sentiments for the stock can be attributed to the sharp rise in crude oil prices. Though the Brent crude prices have slipped below $120 a barrel, there is a looming threat of uncertainties owing to the ongoing Russia-Ukraine conflict.

But amid the dark clouds, one measure is expected to offer comfort and that is yields, a measure of pricing for airlines. With covid cases receding and travel restrictions waning, there is an increased demand for travel. "The number of weekly average daily fliers stood at 341,000 in the week ended (W.E) 12th Mar’22 vs 324,000 in the W.E. 5th Mar’22" said analysts at ICICI Securities in a report.

Post the muted demand in January and February due to the Omicron coronavirus variant, analysts at Credit Suisse Securities (India) Pvt Ltd observe that the strength seen in March is well ahead of the seasonality. “Our passenger fare yield estimates are again very strong similar to Nov-Dec 2021. As a positive indicator, far dated (30-day) travel yields are also strong. Mar-2022 yields are about 4.5," said analysts at Credit Suisse in a report dated 11 March. Even so, the March quarter (Q4FY22) as a whole is expected to report weak results. Analysts at Credit Suisse expect yield of about 3.9-4 in Q4.

Note that in the December quarter (Q3FY22), IndiGo reported yield of 4.41, recording an increase of 19% year-on-year favoured by healthy domestic demand owing to seasonality and international air bubble arrangements. In the Q3 earnings call, the IndiGo’s management said that it believed in achieving yields of 4+ regularly.

Nevertheless, IndiGo is estimated to post losses for the whole year. For the nine-month ended December, IndiGo has reported a net loss of about 4500 crore. Nevertheless, pent-up demand, resumption of regular international flying and favorable seasonality in Q1FY23 means a strong start to FY23. It also helps the pricing environment that the June quarter is typically strong seasonally.

But, of course, higher fuel costs are a concern given that these costs account for a big proportion of airlines’ operating expenses. According to Credit Suisse, “At $120/barrel crude, at Rs3.90 yield levels, company will have no profitability and has to take price increases in the 45-50paise range, effectively 10-12% to offset cost push."

 

ABOUT THE AUTHOR

Vineetha Sampath

Vineetha Sampath is a chartered accountant and is experienced in the field of research analysis. She joined Mint's Mark to Market team recently and this is her first stint in journalism.
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