Home / Markets / Mark To Market /  IndiGo’s take off is not without hurdles

The resumption of international travel after a gap of two years means financial year 2023 has begun on a good note for InterGlobe Aviation Ltd, which operates IndiGo airline, India’s largest. The aviation company has announced restarting its scheduled international flights on over 150 routes starting April, which were earlier operated under air bubble arrangements.

As such, the company has been gaining international market share. Analysts at ICICI Securities Ltd., in a report dated 29 March, said, “Data up to December 2021 showed 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%."

Also, with covid cases waning and pent-up demand emerging for travel, the domestic airline industry stands to benefit as passenger traffic would recover. February saw a recovery, and March is also set for a strong rebound. “Indicative passenger traffic for March 2022 suggests a further improvement of about 40% month-on-month to 10.6 million. Daily passenger data for March 2022 has been averaging ~0.34 million indicating a recovery of about 88% of pre pandemic levels," said analysts at JM Financial Institutional Securities Ltd in a report on 31 March.

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

Even so, all is not hunky dory. Rising aviation turbine fuel (ATF) prices will continue to pose a threat to margins as jet fuel forms a significant chunk of operating expenses. “ATF prices continue to remain high and are up 83% year-on-year and 16% sequentially to average Rs90,700/kl. Airlines have taken a significant price increase to offset sharp surge in ATF prices" added the JM Financial report.

Meanwhile, with increasing competition in the industry, IndiGo lost market share in February by 420 basis points (bps) sequentially to 51% while Tata-owned airline companies such as Air India, Air Asia, and Vistara gained market share sequentially by 90bps, 120bps and 220bps respectively. One basis point is one-hundredth of a point.

Given this backdrop, and high fuel prices, IndiGo shares are likely to remain under pressure. Shares of the airline have surged 23% in the past one year but are down 2% in calendar year 2022 so far.

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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