InterGlobe Aviation has been in the news with a landmark agreement to purchase 500 aircraft. The company also crossed a milestone of Rs 1 trillion in market capitalization on June 28, 2023 – it’s one of just 56 companies to hit this number. In this edition of Chart of the Week, we analyse the factors driving the performance of InterGlobe Aviation's stock from July 2021 to June 2023.
InterGlobe Aviation's stock price has picked up pace in the past six months, after rising by 14.4% in 2022. IndiGo has held on to its position as the market leader, with a market share of 55.7% in Q1CY23 and an average market share of 56% from January 2021 to May 2023.
Indigo’s dominance as a budget airline confirms what many airline companies across the world are discovering - customers may complain about bad food, limited legroom and zero perks, but finally it’s the cheap ticket that is the main deciding factor.
In July 2021, the aviation company’s share price gained 15.6% due to considerable improvements in market share, passenger load factor, and available seat kilometres (ASK). ASK represents the total capacity available for sale by the airline and is a key indicator of its ability to fill up its capacity, and its operational performance.
IndiGo resumed UAE flights on August 20, 2021, after 17 months, leading to a 14.2% increase in share price during August-September. However, in November 2021, despite the government permitting 100% capacity, IndiGo's passenger load factor only improved by 2.5%, lagging behind Air India and GoAir (now GoFirst). As a consequence, the stock price dropped by 12.4% during the month. It was reported that IndiGo received 36 new planes during Jan-Nov 2021.
With a 20% growth in its stock price in 2021, InterGlobe Aviation entered 2022 on a high. But on January 10, 2022, the company reduced its capacity by 20% due to another Covid-19 wave. From March to May, the company lost 20.2% of its share price on the back of weak Q4FY22 results. It posted a net loss of Rs 1,681.8 crore amid weak market sentiment. However, there was a significant recovery in air traffic in June 2022. During this month, IndiGo’s market share grew by 1.3 percentage points MoM, resulting in a 16.3% rise in stock price.
In July 2022, the price of aviation turbine fuel remained unchanged at an all-time high of Rs 1.4 lakh per kilolitre. Additionally, the Indian currency depreciated 6.3% against the US dollar from the start of the year. This has a significant impact because while a large portion of an airline's expenses (around 70%) are in dollars, including fuel, rental, and maintenance costs, most of its revenue is earned in rupees. When the rupee depreciates, it results in higher expenses, impacting the airline's profit margins.
Another factor was multiple technical snags faced by SpiceJet, resulting in the DGCA ordering the airline to operate only 50% of its flights for eight weeks. As a result, InterGlobe’s market share increased by 1.9% to 58.9%. This resulted in an 8% growth in its stock price in July 2022.
Promoter Rakesh Gangwal sold a 2.8% equity stake in the company on September 8, 2022, as part of his plans to exit the business by FY25. This caused the stock to plunge by 5% in the week ending September 11, 2022. In addition, the Chief Executive Officer (CEO), Ronojoy Dutta, retired on September 30, resulting in an 8% drop in its share price during the month.
With the entry of budget airline Akasa Air on August 7, 2022, IndiGo had to offer a 20-25% discount on fares. This led to an 11.6% fall in its share price during August-September. On November 15, the company began operating its inaugural A321 Freighter aircraft on the Delhi-Mumbai route. Additionally, on November 23, 2022, it started services to Portugal and Switzerland through a codeshare collaboration with Turkish Airlines. These developments helped the stock price surge by 11% in November 2022.
In 2022, the stock price experienced a modest 8% gain. However, 2023 has been more promising, with the stock already soaring 28% as of June. The year began with the airline’s international operations recovering to pre-COVID levels, accounting for 23% of total capacity, while the fleet size expanded to 300 aircraft. On February 16, the Gangwal family sold another 4% equity stake in the company.
Domestic passenger traffic in Q4FY23 grew by an impressive 51.7% YoY, leading to a 2.4% market share gain for IndiGo in January-March 2023. In February 2023, the company observed a 6.3% MoM decline in ASK. GoFirst filed for insolvency on May 3, 2023, enabling IndiGo to capture an additional 4% market share previously held by GoFirst. This sparked an 8% rally in InterGlobe's shares.
The company’s recent purchase agreement - the largest in commercial aviation - of 500 Airbus aircraft on June 19, 2023, indicates a strategy shift. IndiGo is now purchasing aircraft instead of leasing them, and its debt levels have consequently increased at a three-year CAGR of 28.7%.
As a result, annual interest expenses have also been increasing at a five-year CAGR of 55.9%. In contrast, lease rentals decreased by 93% to Rs 311.7 crore in FY22. This, along with crossing a market capitalization of Rs 1 trillion, drove the stock to gain 29.7% in value during May-June
