IndiGo flies with record margin, profit in June quarter, analysts credit strong pricing and fuel-led lower cost

Brokerage firm Motilal Oswal is of the view that the beat was led by increased scale and efficiency in operations. Jefferies, meanwhile, said the airline benefited in the first quarter from strong pricing and fuel-led lower costs and competitors suspending operations.

The brokerage’s remark comes against the backdrop of Go First suspending ops since May 3 as the Wadia Group-owned airline filed for voluntary insolvency before the Delhi bench of the National Company Law Tribunal (NCLT).

Nuvama, on the other hand, pointed out that IndiGo’s growth was attributable to increase in capacity and improvement in passenger load factor (PLFs) while yields remained flat.

In a concall post earnings, IndiGo CEO Pieter Elbers said the airline placed a firm order of 500 aircraft with Airbus on June 19. This is the largest single order placed with Airbus by any airline, he said, adding “Our order book is at 1,000 aircraft yet to be delivered by the mid of next decade.”

Jefferies, which has an underperform rating on the IndiGo stock, believes that few of the factors that led to growth in the first quarter, particularly pricing tailwind, appear Reversing in the July to September. The brokerage has tweaked its earnings before interest, taxes, depreciation, and amortisation (EBITDA) projection by 1-2 percent post Q1, it said.

In its note, Motilal Oswal said, “IndiGo is working to increase its international presence through strategic partnerships (codeshare agreement with Turkish Airlines) and loyalty programs. The strong order book of the company also makes it well positioned to expand its network in the domestic market.”

However, there are teething issues faced by IndiGo presently. Some aircraft are already grounded (40) due to engine failures as P&W has recalled its engines for testing purposes and some of its planes would be grounded in phases, it noted.

Despite the positive outlook and strong current demand in India's aviation industry, there are still several challenges that need to be addressed, making it not yet a perfect picture for IndiGo, Motilal Oswal said.

IndiGo had 316 planes in its fleet at the end of June 2023. The airline expects "single-digit" numbers of planes to be impacted in the first phase of inspection of engines by Pratt & Whitney for certain anomalies.