Home / Markets / Mark To Market /  IndiGo steadies ship before a slow Q4

After three challenging loss-making quarters, the December quarter (Q3FY23) was expected to be a good one for InterGlobe Aviation Ltd, helped by seasonality. InterGlobe runs IndiGo, India’s largest airline by market share. The company swung to a net profit of 1,418 crore, from a net loss of 1,586 crore in the September quarter, which was better than expected. But this wasn’t enough to offset the losses incurred in the first half of FY23. Thus, for the nine months ended December, IndiGo’s loss stands at 1,233 crore.

Nevertheless, the strong December quarter performance would mean losses for FY23 could be lower than earlier anticipated. IndiGo’s management has said bookings are strong for the ongoing March quarter even as yield would reflect the impact of seasonality. Against this backdrop, IndiGo expects to close FY23 operationally profitable, excluding the impact of foreign exchange loss.

Graphic: Mint
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Graphic: Mint

The March quarter is a seasonally weak one for the Indian aviation sector, and that is why the number of passengers carried by airlines are expected to be lower sequentially. “Domestic traffic remains resilient with average of 404,000 passengers per day in January 2023 (down 3% month-on-month against average of 415,000 passengers per day in December 2022 owing to seasonality)," said a report by Centrum Broking.

This would mean pressure on yield, which is a measure of pricing for airlines. While IndiGo expects this metric to drop sequentially, it maintains that the yield would be higher than pre-covid levels. “According to our airfare tracker, the 30-day domestic forward price was down 13% month-on-month in January 2023 and the 15-day price was down 22% month-on-month," said Motilal Oswal Financial Services.

Amid this, the softening of aviation turbine fuel (ATF) prices is comforting. Domestic ATF costs are down by 6.3% sequentially in the March quarter so far, pointed out Centrum. There was a sequential fall in the December quarter, too. “The recent decline in ATF costs have provided airlines headroom to lower fares and stimulate demand," said Centrum.

As such, demand trends have been encouraging. The number of passengers carried by domestic airlines in December was up by 9% sequentially, showed Directorate General of Civil Aviation (DCGA) data. When compared to 2019 levels, December traffic is just 2.2% lower.

In fact, robust demand helped IndiGo’s yield skyrocket to a multi-quarter high of 5.37 last quarter. In the international markets, the airline operates at 105% of its pre-covid capacity. International services now contributes 23% of capacity in terms of available seat kilometers. IndiGo aims to take this share to 30% in the year to come, which will aid overall yield.

IndiGo expects capacity to be higher by 15% in FY24. The fleet strength as of December-end stood at 302. Out of this, 238 were fuel- efficient new engine option (neo) aircraft, giving IndiGo a cost advantage. As of December- end, IndiGo’s cash balance stood at 21,924.7 crore. This is helpful amid the entry of new airlines and rising competitive intensity. This presents a looming threat to the airline’s market share, which was nearly 55% in December, according to DGCA. But IndiGo notes that consolidation in Indian aviation bodes well for the sector.

To be sure, ATF prices need to be closely tracked given their volatile nature. Also, adverse currency fluctuations are detrimental to earnings. Negative developments on these two factors would weigh on sentiments for the stock, which is down by about 9% from its 52-week highs of 2,282.10 seen in February last year.

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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