Aviation Sector Update : Higher PLFs could set up a strong Q3 - ICICI Securities
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The average number of domestic daily fliers in Nov’22-TD increased to ~386k vs 368k during Oct’22. Domestic PLFs have also improved from 78% in Aug’22 to 79% in Sep’22 to more than 82% in Oct’22 in line with seasonally strong demand in Q3. We are particularly enthused with the prospect of strong earnings for IndiGo in Q3FY22 which has seen PLFs jump to 82.1% in Oct’22 versus 79.1% for Q2FY23 in the domestic segment.
* Indigo’s Q3FY23 PAT could be strong on the back of multiple reasons. (1) IndiGo has witnessed a good momentum in demand parameters and an uptick in revenue metric as per commentary during Q2FY23 call. (2) We expect improvement in fares and also PLFs. The combined effect could lead to significant growth in RASK. Historically, Q3 fares have been higher than Q2 by 8% QoQ between FY16-20. (3) Management guidance (post factoring groundings) is for 25% YoY increase in ASK in Q3FY23. (4) We expect a sequential dip in ATF prices. This is on the back of Q2FY23 average ATF price being ~Rs131k while the same was Rs118k in Oct’22 and Rs122k on Nov’22. (5) We expect Ex-fuel CASK to remain flat QoQ or decrease go down with higher utilizations.
* Cost overrun on wet leases/lease extensions akin to H2FY20 is a risk but one can also expect compensation from OEMs.
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