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Domestic daily passengers cross 400k in Dec’22; expect IndiGo to deliver robust Q3FY23

Dec’22 average daily PAX for Indian airlines stood at 417k (similar to pre-covid levels). Average ATF prices were lower by 8% QoQ in Q3FY23. Domestic load factors are increasing with a trend of 78%, 81%, 82% and 87% for IndiGo from Aug’22 to Nov’22, respectively. Average Q3 PLFs could be ~ 85% for IndiGo compared to 79% in Q2FY23. As such, we expect IndiGo to report strong adjusted PAT of more than~Rs15bn in Q3FY23 (reported PAT of Rs9.6bn). Cost overrun on wet leases/lease extensions akin to H2FY23 is a risk, but one can expect compensation from OEMs. Deliveries too shot up for IndiGo in Q3FY23 (6/7 aircrafts delivered in Oct/Nov’22 compared to 6 in H1FY23) in line with the typical manufacturing trends of OEMs. Travel impact due to future Covid waves is a risk. Maintain BUY with the unchanged target price of Rs2,360 based on 25x FY24E EPS of Rs94.4.

* Q3FY23E could witness 18% QoQ PAX growth for Indian airlines: Based on actual trends till Nov’22 and estimates from daily traffic trend of 417k witnessed in Dec’22, we expect industry domestic PAX to increase by 19% QoQ to ~36mn in Q3FY23. International PAX as a percentage of domestic PAX stood at 17% in Oct’22 and 19% in Q2FY23; we expect Q3FY23 international PAX to be 18% of domestic PAX. This will imply international PAX (carried by Indian airlines) growth of 14% QoQ to 6.6mn and overall PAX growth of 18% QoQ on an industry level. Accordingly, IndiGo could report total PAX of 22.5mn in Q3FY23, up 14% QoQ, based on market share assumption of 56% in Dec’22 (similar to domestic market share of Nov’22).

* PLFs have seen strong traction: IndiGo’s domestic PLF improved from 78% in Aug’22 to 81%/82% in Sep’22/Oct’22 and 87% in Nov’22, in line with seasonally strong demand in Q3. We expect RPK/PAX ratio at a similar level of Q2FY23 and estimate PLF at 85% for Q3FY23. This may result in ASK growth of ~25% YoY, in line with management guidance.

* ATF prices set for 8% QoQ decline in Q3FY23. ATF prices have declined 2.2% MoM to Rs120k in Dec’22 vs Rs123k in Nov’22. Q2FY23 average ATF price was at Rs130k and declined to ~Rs120k in Q3FY23.

* Indigo likely to report PAT at Rs15bn (adjusted for forex losses) in Q3FY23: We expect RASK of Rs5.1, up 13% QoQ, driven by passenger revenue growth of 16% QoQ (on the back of 14% increase in PAX and 2% increase in fare growth). Fuel / ASK is likely to decline 5% QoQ driven by ~8% fall in ATF prices and INR/USD depreciation of 3% QoQ in Q3FY23. We have factored-in CASK (ex-fuel) of Rs2.55 (Rs2.52 in Q2FY23). Forex loss are expected to be in the vicinity of Rs5.5bn resulting in reported PAT of Rs9.6bn. Adjusting for the forex loss, we expect PAT at Rs15bn.

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