After Jet Airways grounding, IndiGo market share soars, rises by by 300bps

IndiGo seems to be the biggest gainer from Jet Airways' grounding and continues to grow even as the Indian aviation industry entered the negative territory reporting the monthly passengers de-growth at ~-5% in April, according to IndiaNivesh's monthly aviation report. IndiGo gained market share by 300bps mom at ~50% in the month of Apr’19. The other market players also reported an improvement in their respective load factors for April 19 - SpiceJet (70bps), Air India (40bps). Meanwhile, the aviation turbine fuel (ATF) price for May 2019 increased by 3% mom at Rs 66.8.

However, the concern for IndiGo could be its load factor for April 19 which was reported at 87.8 per cent, less than 91.9 per cent reported for the same month last year. This indicates IndiGo's supply addition is more than its demand highlighting concerns over their operating matrix. The report said that while Indigo has gained market share and traffic growth YoY, higher fixed costs on higher supplies along with tapering yields may add pressure on its forecasted earnings.

IndiaNivesh has recommended a SELL on IndiGo with a target price of Rs 1,300 and also recommended to book profits on SpiceJet at current levels.

In April, the overall passenger load factor improved due to slower addition of flights compared to the grounded flights. The industry’s load factor was at 83.4% for Apr’19. SpiceJet and IndiGo reported its PLF at 93.7% and 87.8%, respectively, down 70bps mom and 180bps mom.

Outlook on IndiGo

The report says that while yields have been very strong YoY and Indigo has gained market share and traffic, higher fixed costs on higher supplies along with tapering yields may add pressure on its forecasted earnings. This clearly indicates the industry supply is in excess of its demand currently. It further adds that the negative passenger growth is a concern.

Overall, lower traffic growth, moderating yields, higher crude costs and sharp rally in the stock prices all warrant for profit booking in Indigo and SpiceJet at current levels, the report says.