India’s domestic air traffic has nearly reached its pre‐Covid levels and international traffic is fast scaling up after the resumption of scheduled international travel in March. Fares, meanwhile, have strengthened from the lows of February and have offset the incremental burden of higher fuel costs. IndiGo continues to consolidate its domestic leadership position and is making a major push towards international markets through codeshares.
It expects the international segment’s share to reach 40 per cent in five years from 21 per cent pre‐Covid. Guidance is robust – ASK growth of 150 per cent in Q1-FY23 and 55‐60 per cent in FY23. Improved fleet utilisation and lower maintenance costs should aid unit cost reductions.
Fare increases have thus far covered the impact of elevated fuel costs with traffic remaining resilient. Any meaningful reduction in fuel costs, whether it is led by easing of present geopolitical tensions or otherwise, can act as a material upside trigger for the stock. Lower fuel costs give airlines more room to stimulate demand through lower fares and discounts while sustaining their gross spreads.
We upgrade IndiGo to Buy with PT of ₹2,284 (10x FY24E EBITDAR).