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Upward pressure on fuel, supply issues may clip IndiGo’s wings


The stock of InterGlobe Aviation Ltd, which runs IndiGo airlines, has run up 20% so far in 2023 as the company gained market share amidst Go First’s troubles. However, IndiGo is facing headwinds owing to a bunch of factors.

One, oil prices are rising again, at a time when airline yields are under pressure. Yield here refers to the revenue a carrier earns per passenger per kilometre. Average aviation turbine fuel prices for September 2023 were hiked by 14% month-on-month to about 114,000 per kiloliter. This is the third consecutive hike after an 11% total increase seen in the last two months.

The bigger worry is that the upward pressure on fuel prices is likely to persist. Higher spot jet fuel prices suggests another price hike in the next month, according to Prateek Kumar, an analyst at Jefferies India.

Two, IndiGo’s passenger load factor (PLF), a measure of capacity utilisation, has been subdued in the past two months. In August, IndiGo’s PLF dipped to 83.6% compared to a peak over the last one year of 91.5% seen in May. A mitigating factor is the airline’s market share remaining steady sequentially at 63.3%.

“IndiGo being able to maintain domestic market share despite lower PLFs indicates better aircraft/pilot availability for it versus other airlines,” said analysts at ICICI Securities in a report on 15 September.

Third, IndiGo is likely to see an increase in the number of grounded aircraft, which means an increase in expenses without any incremental revenue. At the end of June, IndiGo’s grounded aircraft stood at 40. This comes amid worsening Pratt & Whitney (P&W) engine issues.

Across the globe, P&W estimates to recall as many as 700 engines from its Airbus A320neo jets between 2023-2026 for inspections.

Collectively, these factors would weigh on IndiGo’s profitability in the seasonally weak September quarter (Q2FY24) when pricing takes a knock.

In its Q1 earnings call, IndiGo had said that it expects to see a bigger dip in yield in the second quarter from the level of 5.18 per passenger per kilometre seen in the three months ended June.

Investors will closely monitor the yield numbers in the days ahead. In the long run, how the competitive landscape shapes up would be interesting to watch as the Air India group strengthens its position in Indian aviation.

In August, the Air India group’s market share stood at 26.7%, the highest in the last one year at least.

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Updated: 19 Sep 2023, 10:33 PM IST

Joanna Swanson

Joanna Swanson is Europe correspondent at the Thomson Reuters Foundation based in Brussels covering politics, culture, business, climate change, society, economies and inclusive tech. With specific focus in breaking news, she has covered some of the world's most significant stories.