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Passenger traffic for Jul’23 marginally declined by ~3.0% MoM to 12.1mn. Aug’23 passenger traffic run rate implies ~12.1mn flat MoM. Last reported domestic PLF for Jul’23 witnessed a decline MoM across airlines with Indigo’s PLF at ~83.7% (-7.2ppt MoM) while Air India’s PLF stood at ~84.2% (-4.0ppt MoM). Indigo continued to gain market share during Jul’23 with its share now at 63.4% (63.2% in Jun’23). Indigo has also increased focus towards international operations with a) discussion with Boeing to place an order for 25 wide body aircrafts (as per media articles) b) 174 new weekly international flights between JunSep23 to cater to the rising demand for international travel. Yields for airlines are witnessing a significant decline in 2Q given a seasonally strong base with airfares down ~12% QoQ (as per JM fare tracker). Further, recent rally in crude price is likely to result in marginally higher ATF prices for airline companies during 2Q. PLF’s for the quarter are also expected to decline from 1Q avg of 90.3% with spot PLF’s averaging ~85%. Go-first’s revival has slowed down post Delhi high court’s order to allow aircraft leasing companies to access the aircraft leased to Go First for inspections and maintenance work. This has resulted in the airline’s new management (under the resolution professional) from failing to raise funds from banks due to questions over availability of aircraft. Indian airlines’ engine woes continue to deepen with phased inspection of engines by P&W on account of microscopic cracks due to a rare condition in the powdered metal used for production. Indigo expects five aircrafts to be adversely impacted due to phased inspection of P&W engines. Further, Indigo’s ex promoter Rakesh Gangwal sold ~5% stake in the company via a block deal today. This is in line with his strategy to reduce stake in the company over the coming years. Gangwal’s stake post the recent sale stands at ~25%. Impending stake sale by Gangwal besides slowing earning trajectory in 2Q is likely to weigh on Indigo’s stock price.

* PLF’s across airlines witness a decline: Indigo reported a market share of 63.4% for the month of Jul’23, flat MoM. Domestic Pax of ~12.1mn expected in Aug’23 implies a 3% growth vs pre pandemic level. Reported PLF’s for most airlines declined MoM in Jul’23.

* Go First revival on a slowdown: Go First’s revival plan has slowed down post Delhi high court’s order to allow aircraft leasing companies to access the aircraft leased to Go First for inspections and maintenance work. As a result the airline’s new management under the resolution professional (RP) has failed to raise funds from banks due to questions over availability of aircraft.

* Pratt & Whitney engine issue adds to airline challenges: Phased inspection of engines by P&W on account of microscopic cracks due to a rare condition in the powdered metal used for production is likely to adversely impact airlines. P&W will inspect 1,200 engines with 200 engines expected by mid-September and the rest over the next year. Indigo expects five aircrafts to be adversely impacted due to phased inspection of Pratt & Whitney's engines. 11 aircrafts (six already grounded) of the airline have been identified for inspection by Sep’23. .

* Spicejet – Credit Suisse contempt case heats up: Spicejet – Credit Suisse case heats up as Supreme Court directs Mr Ajay Singh, MD SpiceJet, to respond to the contempt case within a four-week timeframe. Credit Suisse lodged a plea with the Supreme Court in March, seeking to initiate contempt proceedings against Ajay Singh and SpiceJet. This move was in response to failure of Spicejet to settle dues amounting to US$3.9mn, stipulated in a settlement between the two parties.

* Indigo build on its international operations: Indigo in line with its strategy to expand international operations is in discussion with Boeing to place an order for 25 wide body aircrafts (as per media articles). This is in addition to the company’s plans to add 174 new weekly international flights between Jun-Sep23 in order to cater to the rising demand for international travel.

* Indigo ex-promoters further reduce their stake: Rakesh Gangwal sold 5% stake in the company via a block deal. Post the recent sale, Gangwal’s stake currently stands at ~25%. Impending stake sale by Gangwal is likely to weigh on the stock price.

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