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Traffic improves; surge in ATF cost a dampener

Traffic recovery continued in Q1FY23 albeit with some moderation mid-June onward. Domestic passenger traffic is likely to have grown 37%YoY in Q1FY23 to 34m. ATF prices for domestic flights grew 36% QoQ to Rs123/ltr with current price being far higher at Rs144/ltr. Our fare tracker indicates 19% QoQ rise in fares on key routes (7-day ahead basis) and accounting for mix changes we have factored 20% QoQ increase in revenue yield for IndiGo. We expect RASK to expand 20%QoQ to Rs4.74 and gross spread (RASKFuel) to expand 10%QoQ to Rs2.62. CASK ex-fuel and ex-Fx MTM is likely to decline 18% QoQ to Rs2.4 led by higher fleet utilization. INR has depreciated 4.3% against USD in Q1FY23 to Rs78.9/USD which should drive steep fx MTM loss of Rs14.7bn for IndiGo. We expect EBITDAR of Rs11.3bn and net loss of Rs7.9bn in Q1FY23 on reported basis. Ex of Fx MTM, we expect EBITDAR of Rs26bn and PAT of Rs6.9bn. Maintain BUY.

Domestic traffic continued to recover; IndiGo’s market share rises to ~58%

Domestic passenger traffic continued to recover from the 3rd wave impact of Jan/Feb-22. Aided further by favorable seasonality we expect domestic passenger traffic for the industry to have grown 37% QoQ to 34m in Q1FY23. This is 90-95% of the pre-Covid levels. IndiGo’s market share is likely to have improved to ~58% in Q1FY23 from 53.9% in Q4FY22. With lean season setting in from July-22, we expect traffic momentum to slow down in coming months and then recover from Oct-22 onwards.

Scheduled international travel resumed from Mar-22; strong pick up in traffic

After a ban of two years, DGCA allowed scheduled international flight operations from 27th Mar-22. As many as 60 airlines from 40 countries have been permitted to operate 1,783 frequencies to/from India during the summer schedule (from 27th March to 29th October). DGCA approved 1466 international departures for six Indian airlines for the summer schedule. The airlines will operate to 43 destinations in 27 countries. International traffic improved 38% QoQ in Q1FY23 to 6.2m (based on daily MoCA data).

Domestic ATF prices up 36% QoQ to Rs123/ltr; 7-day ahead fares up 19% QoQ

In Q1FY23, domestic ATF prices rose sharply by 36% QoQ (up 95.6% YoY) to Rs123/ltr, led by 14% QoQ rise in average brent crude to USD112/barrel. Our fare tracker for top 25 routes indicates fares in seven-day forward booking window grew by 19% QoQ while fares in 2-month forward booking window grew 41% QoQ in Q1FY23. Having said that, the absolute fares are quite different in both the booking windows (7-day ahead fares were 52% higher than 2-month ahead fares in Q1FY23). So the actual movement in yields would be driven by the QoQ change in proportion of travel undertaken in each window.

IndiGo: Expect loss of Rs7.9bn amid fx MTM loss of Rs14.7bn; core profitability metrics to improve

We expect ASKM/RPKM to grow 36.7%/41.5% QoQ with blended load factor of 79.4% (76.6% in Q4FY22). We build 20%QoQ increase in revenue yield/RASK for IndiGo to Rs5.3/Rs4.74 led by strengthening in fares. With unit fuel cost likely to rise 34%QoQ to Rs2.12 we expect Gross spread (RASK-Fuel) to grow at lower pace of 10%QoQ to Rs2.62. CASK ex-fuel and ex-fx MTM is likely to reduce 18.3%QoQ to Rs2.4 with benefit of increased higher traffic and increased fleet utilisation (11.7hrs/day against 9.7hrs/day in Q4FY22). We estimate Fx MTM loss of Rs14.7bn in Q1FY23 (Rs6.1bn loss in Q4FY22) led by 4.3% depreciation of INR against the USD. On reported basis, we expect IndiGo’s EBITDAR at Rs11.3bn and net loss at Rs7.9bn. Adjusted for fx MTM loss we expect EBITDAR/PAT of Rs26bn/Rs6.9bn for IndiGo. Maintain BUY.

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