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Domestic pax growth steady; Indigo maintains formidable market share India’s domestic air traffic grew 18% YoY to 12.2mn in Sep-23, while daily trends in Oct23 indicate traffic growth of ~13% YoY. Volumes are expected to inch upward in Q3FY24E, driven by seasonal festive trends. Our long-term Indian-passenger CAGR of 12% during FY24-30E remains on track. Indigo retained its lion’s share in the Indian skies in Q2 with 63.4% market share. Tata Group’s overall market share rose by 60bps QoQ in to 26.3% in Q2, while SpiceJet lost 90bps and Akasa’s share marginally declined to 4.5% as its growth plans slowed down due to cancellations.

Marginal change in load factors; Indigo leads in OTP as well as in cancellations Passenger Load Factors (PLFs) slightly improved across key airlines, with Indigo recording the highest monthly gains among peers, at 110bps, resulting in Sep-23/Q2 PLF at 84.7%/84.0%. Vistara topped the PLFs chart in Sep-23 at 92%, up by 70bps MoM, while Akasa’s PLF rose by 80bps MoM to 88.1%. SpiceJet/Air India/AirAsia’s PLFs improved by 50/20/10bps MoM to 91.4/84.7/82.5%, respectively, in Sep-23. Indigo witnessed the highest cancellation rate (of 0.92%) among key airlines in Sep-23, possibly due to weather conditions, while its OTP performance was resilient at 83.6%. AirAsia/Air India/Vistara’s Sep-23 OTP performance stood at 81.6/74.4/74.3%, respectively.

Fuel costs to cool down; yields on healthy trajectory in Q3 PSU OMCs have hiked domestic ATF price by 5% MoM for Oct-23, due to rise in crude prices as well as in jet fuel spreads. Brent is trading slightly lower at ~USD90/bbl, while spreads have corrected ~20% from the recent highs, indicating a ~3% MoM cut for Nov23. For Indigo, a 5% higher ATF price leads to ~Rs28/share EPS loss, ceteris paribus. We estimate current yields to be better than their Q2 levels, while the recent introduction of fuel charge under a separate head in the fare lends support in an elevated fuel cost environment.

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