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IndiGo maintaining market share even with lower PLFs; aircraft grounding is a transient issue

Higher ATF prices and lower PLFs points toward the likelihood of an overall weaker spread in Q2FY24. However, IndiGo being able to maintain higher passenger market share despite lower PLFs indicates better operational aircraft availability than peers. The headlines [Link] have also been dominated by the possible increase in aircraft on ground based on the outlook shared by PW. IndiGo may mitigate the impact through secondary leases, as per media articles (Link). Additionally, OEM compensation might take care of incremental cost burden of secondary leases. As such, we remain positive on InterGlobe Aviation basis structurally favourable supply demand equation in India and the vantage position of IndiGo.

Monthly domestic traffic at ~12-12.5mn in Jun-Aug’23

Aug’23 saw growth in total PAX to 12.4mn vs 12.1/12.5mn in Jul/Jun’23. Sep’23 too has seen strong traffic till date (if we extrapolate the recent trends, Sep’23 traffic would be 12.2mn).

IndiGo maintains more than 63% market share

IndiGo’s market share stood at 63.4% (+20bps MoM), while Tata Group’s combined market share stood at 26.8% in Aug’23.

PLF remains muted for IndiGo in Aug’23

PLF for IndiGo remained muted for the second month in a row at 83.6%. SpiceJet/ Vistara saw an increase of 2.0/4.3% to 90.9/91.3%, respectively, in Aug’23. IndiGo being able to maintain domestic market share despite lower PLFs indicates better aircraft/pilot availability for it vs other airlines.

Average ATF prices in Q2FY24TD are 6.8% higher than Q1

Lower PLFs and higher ATF may lead to lower spreads in Q2 but profit contribution from seasonally weak Q2 is normally low (average 12.9% over FY16-FY18)

IndiGo could explore secondary markets in the wake of increased grounding

Pratt & Whitney indicated that fleet groundings will ‘average’ 350 at any given time through 2026, while it could ground 650 Airbus A320neos at one time early next year. Lufthansa indicated that the accelerated GTF removals are likely to result in the grounding of 20 of its A320neos on average in 2024. IndiGo’s possible grounded aircraft count in such a scenario could rise. To manage the deficit at all points of time, the average grounded fleet may not be the right parameter but the peak grounding quantum should also be a consideration. As such, IndiGo could resort to A320 ceos from the second hand market as of now (Link 1, Link 2, Link 3).  

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