ET Analysis: IndiGo unlikely to gain share as rivals’ business plans take off

ET Intelligence Group: Intense competition is expected to make it difficult for InterGlobe Aviation, the owner of IndiGo, to gain market share in the medium term.

The country’s largest airline was the biggest beneficiary of Go First’s bankruptcy last May. Between April and September 2023, the market share of IndiGo increased to 63.4% from 57.5%. Since then, however, its share fell by 160 basis points in November to 61.8%, according to the latest data published by the Directorate General of Civil Aviation (DGCA). During the period, SpiceJet’s share increased to 6.2% from 4.4% while that of Tata Group’s airlines including Air India, Air Asia and Vistara remained more or less stable at 26.5%.

Historical data show that an airline gains market share or improves margins amid weak competition. This was true for InterGlobe as well. Apart from expanded market share, its operating margin before depreciation and amortisation (Ebitda margin) improved to 31.2% in the June 2023 quarter from 20.9% in the March 2023 quarter despite buoyant crude oil prices at the time. Factors such as fund crunch, delays in delivery of planes and relatively weak balance sheets of rivals contributed to InterGlobe’s performance.

However, these factors are no longer favourable for the airline.

SpiceJet, which was in dire need of funds, infused ₹2,250 crore in the middle of December through the issuance of warrants on a preferential basis. Besides, Akasa Air has resolved the issue of the shortage of pilots. In addition, the domestic aviation sector is in expansion mode and may add 150 aircraft over the next 12 months. That will be the highest capacity addition in the past four years.

Given these factors, analysts estimate that InterGlobe Aviation may not be able to gain incremental market share in the coming months. The company is likely to take measures to defend its market share. On Thursday, the airline removed fuel charges resulting in lower ticket prices. It introduced these charges in October due to higher aviation turbine fuel prices.

Revenue growth of airlines is expected to slow down in the next fiscal year. According to Bloomberg’s estimates, InterGlobe’s revenue may grow by 10.7% for FY25, slower than the expected 21% growth for the current fiscal year. The airline’s Ebitda margin is likely to fall to 21% in FY25 from the estimated 22.5% in FY24. On the valuation front, the company’s enterprise value (EV) is 8.9 times the FY25 expected Ebitda compared with the multiple of 10.1 in FY23.