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Repeat order underlines consistency in business strategy

InterGlobe Aviation’s (IndiGo) fleet management has been its absolute bedrock in building a successful cost-efficient airline operation. This has been further strengthened by IndiGo’s latest order of 500 Airbus A320 family aircraft placed in June’23. The key elements of IndiGo’s successful fleet strategy are: (1) Ordering well in advance to ensure continuous increase in capacity along with benefits of associated cashflow, (2) maintaining low cost structure driven by consistency of uniform and fuel-efficient fleet composition, (3) maintaining operations on single aisle aircraft fleet despite the strategy of increasing international mix to 30% over the next two years and 40% by this decade from 23% in FY23. IndiGo’s consistent approach to aircraft management has given it rich dividend by continuously being able to sustain cycles in terms of lowest cost structure and cash accretion. Maintain BUY on InterGlobe Aviation with an unchanged target price of Rs3,000, based on 25x FY25E EPS of Rs120. Risks include managing cost and fleet expansion in the midst of global engine crisis.

IndiGo places a firm order for 500 Airbus A320 family aircraft. This 500 aircraft order is not only IndiGo’s largest order, but also its largest-ever single aircraft purchase by any airline with Airbus. Key highlights of the order include:

1. This order will be delivered between 2030 and 2035. The Engine selection for this order will be done in due course and so will be the exact mix of A320 and A321 aircraft.

2. Previous orders total to 480 aircraft, which are scheduled for delivery by 2030.

3. As such, with this additional firm order of 500 aircraft for 2030-2035, IndiGo’s order- book has almost 1,000 aircraft yet to be delivered well into the next decade.

4. This IndiGo orderbook comprises a mix of A320NEO, A321NEO and A321XLR aircraft.

5. The uniform fuel-efficient A320NEO Family aircraft will allow IndiGo to maintain its strong focus on lowering operating costs and delivering fuel efficiency with high standards of reliability.

* This new order will bring the strategic relationship between IndiGo and Airbus to an unprecedented depth and breadth. With this new order, since its inception in 2006, IndiGo has ordered a massive total of 1,330 aircraft from Airbus.

* The order also implies that IndiGo will continue with its single aisle strategy despite deeper international foray. This highlights the continuation of the low cost business model even in international segment which should result in consistent cost expectations. A321 XLR will offer extended range deeper into Europe and East Asia.

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