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International expansion to provide runway for growth

We met with InterGlobe Aviation’s (IndiGo) management at the company’s office in Gurugram on 7th Dec’23. Here are the key highlights:

? The management noted that domestic demand has not peaked yet despite it being flat in the past couple of months as MoM data is not comparable. After Diwali, operations have normalized, with average yields expected to be flat YoY in 3QFY24.

? IndiGo is the seventh largest airline in the world currently (market share of 18.5%) and plans to expand its international footprint significantly. The international market behaves differently compared to the domestic market, and hence it would tread accordingly on the expansion plans.

? However, the number of grounded aircraft for IndiGo stood at over 40 in 2Q, and it expects 35 more to be grounded in 4QFY24, being recalled by Pratt & Whitney (P&W) for various issues (including powder metal issue). We remain wary of rising competition in the domestic market, and retain our Neutral rating on the stock.

Demand remains robust, not peaked yet

? India is one of the fastest-growing aviation markets in the world, and it is estimated that 1,100 passenger aircraft will be needed by CY27 to cater to India’s ever-growing demand for air travel. Domestic demand has been above the pre-Covid level since Dec’22. India's domestic air passenger traffic increased ~9% YoY to 12.7m in Nov’23 (vs. ~11% YoY growth in Oct’23).

? Demand remained healthy, aided by the festive season, even as some demand got delayed due to ‘Shradh’ in Oct’23 and a few long weekends (when people do not tend to return from their hometowns). As per the management, demand has not peaked as of now and MoM data is not comparable.

? Yields are expected to be flat in 3Q as operations have normalized after Diwali for IndiGo. The management in its 2Q concall highlighted that yields declined in Oct’23, casting a shadow on yields in one of the strongest quarters in a financial year. International traffic has also slowed, though Indigo is expected to maintain its yields in 3QFY24 on YoY basis.

International expansion to provide new growth avenues

? IndiGo is the seventh largest airline in the world right now with a market share of 18.5%. It aims to become the third largest in the world and has strategies in place to expand its global footprint significantly. The management highlighted that the international market behaves differently compared to the domestic market, and hence it would tread accordingly on the expansion plans.

? Mr. Pieter Elbers, CEO since Sep’22, has rich experience of holding important positions in international airlines. The company is adding wide-body aircraft and signing up sales agents for marketing and branding. IndiGo will add more destinations

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