Domestic air passenger traffic returns to pre-COVID level; analysts see 18% upside in IndiGo

India's domestic air passenger traffic came in at a record 1.29 crore flyers in December, soaring above the pre-COVID level, according to Zee Business research. 

Civil Aviation Minister Jyotiraditya Scindia posted on Twitter: “2022 sets new record in air passenger movement.” 

"There is a healthy trend in domestic passenger movement of late -- a good sign for the aviation sector," the minister wrote. 

December marked the highest number of passengers flown in a month since January 2020, as around 2800 flights took off in the last month of 2022 with a passenger load factor at 80 per cent, according to Zee Business research. 

According to estimates, domestic air passenger traffic is likely to be around 1.25 crore in January 2023. Typically, the festival and vacation period in India, between October and December, gives a fillip to the aviation industry as more people travel. 

Airfares in December increased by 30-40 per cent on a year-on-year basis mainly due to a spurt in demand and a lack of capacity, according to Zee Business research.  

While airlines faced a shortage of engines and planes, delayed delivery of aircraft components also hurt the sector. Besides, fluctuations in the forex market and crude oil -- which accounts for a major chunk of operating costs for the space -- led to volatility in aviation costs, according to the research. 

Ansuman Deb, Research Analyst at ICICI Securities, expects IndiGo to report a strong adjusted profit after tax and a reported profit after tax of Rs 1,500 crore and Rs 960 crore, respectively, in the quarter ended December 2022. 

He also said that the cost overrun on wet leases/lease extensions akin to the second half of the financial year is a risk but one can expect compensation from original equipment manufacturers (OEMs). 

Deliveries too shot up for IndiGo in the December quarter as around 6/7 aircraft were delivered in October-November 2022 compared to six in the first half of the year, in line with the typical manufacturing trends of OEMs, the ICICI Securities analyst wrote. 

He highlighted the risk of impact on travel on account of future COVID waves as a key risk. 

ICICI Securities has maintained a 'buy' call on IndiGo with a target price of Rs 2,360 apiece -- implying upside potential of 18 percent from the current market price. 

On Wednesday, IndiGo shares finished almost 2 per cent lower at Rs 1,999.7 apiece on BSE, underperforming the benchmark Sensex index, which dropped one per cent amid mixed global cues.