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INDIGO: lagging fleet growth vs rivals
Airfares correcting 6% YoY during Q1FY25
Our analysis shows that 15-day advance airfare on all domestic routes fell 6% YoY during Q1FY25 vs 9% YoY growth during Q4FY24. For the past four quarters (Q1-Q4FY24), there was a 96% correlation between industry airfare observed by us for ~400 domestic routes and airfare yield reported by InterGlobe Aviation (INDIGO IN). We believe the drop in airfare can be partly attributed to 1) a QoQ decline in aviation turbine fuel prices (ATF) by 2.2% in Q1FY25, and 2) drag on airfare from a growing domestic fleet by INDIGO's competitors.
Increasing domestic fleet, driven by Air India
During Q1FY25, the domestic industry in-service fleet rose 7%. During January-May 2024, we believe the Tata Group added 28 aircraft, where Air India added 14 and Air India Express added 12. This is driven by cumulative aircraft delivery of Boeing and Airbus at 23 aircraft to the Tata Group during January-May. INDIGO lost domestic market share from the peak of 63.4% in September 2023 to 60.6% in April 2024. This mirrors 46 narrow-body aircraft delivery to competitors, which includes 37 by Air India, five by Vistara and four by Akasa Air vs 20 by INDIGO. Moreover, INDIGO's fleet addition was nullified by the grounding of ~75 aircraft, due to engine inspection exercise at Pratt & Whitney (P&W). In contrast, INDIGO gained market share in H1FY24, from 56.8% in March 2023 to 63.4% in September 2023, due to its leadership in narrow body fleet addition at 28 vs nine by competitors. Thus, it was able to capture most of the market share of grounded GoFirst airline as well as declining capacity of SpiceJet (from 45 in March 2023 to 33 in September 2023) in H2FY24.
P&W engine inspection continue to hit fleet addition near term
As per Planespotter data, ~80 INDIGO aircraft have been grounded out of a total 136 P&W engine-fitted fleet vs ~40 in Q3FY24 and ~75 in Q4FY24, as P&W continues with its engine inspection exercise that we expect may take another 6-10 months. Our calculations show ~80 grounded planes have hit around 13% of domestic aviation capacity. We believe the domestic under supply situation would turn to balance market by end H1FY25, post which the domestic market may gradually witness oversupply in H2 when the grounded INDIGO's aircraft may fly again while peers may continue to add fleet at 10% of total domestic capacity.
Easing constraints in key metros to be key monitorable for long term demand
According to CRISIL and the Airports Authority of India (AAI), most key metro terminals at Delhi, Mumbai, Bengaluru, Hyderabad, Chennai, Kolkata, and Ahmedabad are operating near or above terminal current capacity. Timely progress toward planned capacity expansion of such airport capacity is key to spur strong demand, as these Top 7 airports accounted ~67% of total passenger traffic in FY24. Current capacity for Top 7 airports is 261mn passengers pa and may be ~320mppa by FY28E, excluding the upcoming Greenfield airports at Delhi and Navi Mumbai by FY26 with initial capacity at 12mppa at Delhi & 30mppa in the next five years and 20mppa in Mumbai & 60mppa in the next five years.
Valuation: retain Sell with a TP of INR 3,566
We reiterate Sell, given the anticipated pause in market share growth and potential margin decline in H2FY25. We retain our TP at INR 3,566 based on 9.0x FY26E EV/EBITDA.
Shares of InterGlobe Aviation Limited was last trading in BSE at Rs. 4371.35 as compared to the previous close of Rs. 4299.25. The total number of shares traded during the day was 16561 in over 2075 trades.
The stock hit an intraday high of Rs. 4410.00 and intraday low of 4320.95. The net turnover during the day was Rs. 72313256.00. |
