InterGlobe Aviation - Indigo

(django) #101

<Disc. Invested in Indigo>

Thanks for the update on Jet.
However, airline industry is a commodity business (i.e. all seats are equal… there is no appreciable difference between an Indigo seat and a Jet airways seat)

Hence, I would always prefer to be with the lowest cost operator.
I compared CASK (Cost per Available seat km) of Indigo, Jet and Spicejet for Q2 FY18:

Indigo: 3.01 Rs/km
Jet: 4.22 Rs/km
SpiceJet: 3.6 Rs/km
(this includes fuel cost which is 1.09, 1.15, 1.13 Rs/km for them respectively)

The way I look at this is:
Jet has to reduce its cost by ~29% to match Indigo
SpiceJet has to reduce its cost by ~16% to match Indigo

Both of the above are difficult although it is easier for SpiceJet to bridge the gap.

Hence Indigo looks better.
My 2 cents.
Suggestions are welcome.


(Pavas) #102

not exactly comparable as Spicejet focus on tier 2 & 3 cities with limited seats on ATR planes. In these cities overheads are higher as well as operating cost due to smaller planes… however they have higher revenues per seats due to virtual monopoly and limited seats…so better to look at margins per km…

(django) #103

Good point!

I just did a quick comparison on EBITDA / ASKm for the three airlines:

Here gap between Indigo and SpiceJet is quite close.

(Ravi Srikant) #104

Shouldn’t the EBITDA per ASK be adjusted for the PLF as well? I think Indigo’s plf is slighly lower than Spicejet’s.

(Alok Bhola) #105

(Sudheer) #106

“The fuel leak instance isn’t a standalone instance of Indigo being in trouble. Earlier, too a Delhi-bound IndiGo airlines plane from Mumbai with around 160 passengers on board returned to the Mumbai airport 20 minutes after take-off due to another fuel leak. Leakage in the fuel system of the aircraft forced the pilot to take back the flight to the city. In another incident, IndiGo flight between Hyderabad and Dubai took off with less than required fuel, last year, and had to be diverted to Mumbai for refueling prompting a Directorate General of Civil Aviation (DGCA) inquiry into the issue.Accompanied by this, in a similar incident, a major accident was also averted in November this year at the Delhi Airport when the pilot detected smoke in the cockpit of an IndiGo aircraft and brought it back to the runway, immediately after it had taken off.”

The number of failure instances are slowly surfacing… not sure if these are operational errors or flight related. Indigo is still maintaining the young fleet among the pack - any insights ?

Disc: Not invested but following

(chets) #107

Indigo used to be my preferred airline until recently. Surprisingly, the reason for this is their biggest USP. “On time, everytime”.
Once or twice it happened that the flight I was going to take arrived late, but they got the next leg passengers in very quickly so that the next leg of the flight is not delayed and their on time metrics are not hampered. Despite starting 40 mins late in a 2 hour duration travel, we reached the next destination on time.
This really got me thinking… are all safety parameters being thoroughly checked before every take off or not? If yes, how come they are able to get a flight in the air in 10-15 mins after it lands.
India is a country, where incidents are forgotten very quickly and hence the quality benchmarks are pretty low. I can resonate with your post and I feel that these increasing incidents are leading to a disaster scenario for sure.

(anil jain) #108

Air Deccan: Back in the skies
With smaller aircraft and strategic tie-ups, Air Deccan’s Captain GR Gopinath is having another go at commercial aviation. Will he be second time lucky?

(atul1082) #109

Indigo fleet is very young and has now about 1000 flights a day.If one calculates incidents/no of flights in %age terms, I think Indigo has an excellent record.Indigo is very efficient in passengers handling and all other associated works , they do it in highly professional manner. Indigo has been making substantial profits right from beginning , even when the crude was on boil & delivers the best in all parameters, gross margins,net margins ,non auro nautical margins, commercial agreements with aircraft suppliers etc. and has a market share close to 40%.When a business such as airlines is on the top, even the slightest of issues are highlighted by rivals and it needs to guard against negative publicity .If u see the video posted last time, the passenger himself was abusive and hit the staff.In short, I am of the opinion, Indigo has quite a lot of steam left as a business and will remain a leader for quite some time.

Disc:Invested and buying incremently

(atul1082) #110

In my opinion, spicejet is second best airlines in terms of commercial performance but also has past losses and huge equity.while interglobe aviation has been making consistant profits right from inception , has a good cash balance and a well defined strategy to remain market leader, spice jet is slowly making its position, but has a long way to go.
Interglobe has insulated itself better than others in case of crude price rise and has higher margins, both aero and non aero.
Interglobe has been improving on RASK and reducing CASK & is likely to remain in leading position for many more years.
Disc:Invested .Therefore my views may be biased.

(Aman Goklani) #111

Barring the crude price risk (which all reports suggest will cool off), isn’t the Indigo stock looking undervalued?

It’s available at a PE of 18 odd. PEG ratio is around 0.44. Earnings yield is around 8 (data from All for a company that is poised to grow it’s sales and profits at least at ~18-20% for the next 3 years. To boot the stock is offering a dividend yield of ~2.5%, which with increasing profits and cash flows is going to increase going forward and be around ~3.5 yoy (avg) over the next 3 years.

The balance sheet looks good with cash on books (8000 crores). It has good return ratios (ROE/ROCE) indicating efficient capital allocation. High promoter holding (that ensures the promoter has his skin in the game)

Furthermore, the company is a market leader in efficient cost management (in a tough sector) and ASKMs (by the virtue of their fleet size).

Considering the prospects of the sector, the company and other points listed above, shouldn’t this company be valued higher than what it is trading at?

Disc: Invested

(sandeepayachit) #112

Definitely. Look at the MF holdings share over last few quarters. Steadily rose from 1.5 to 7.5%. With ~75% promoters share, free float is very low. If it continues to grow at 18-20%, re-rating is on the cards.

Disc: Recently entered.

(atul1082) #113

Management had in recent past stated that dividend may be lower as they plan to buy aircrafts for regional connectivity.interglobe,of late,has shifted to owning aircraft rather than taking on dry lease.airlines business has always been cost intensive, low margin and risky business worldwide as world best airlines have gone bust in the past.Thats the reason many investors do not consider it a long lasting and safe business and hence has low p/e.
Having said that, interglobe has navigated very well since inception.

(Aman Goklani) #114

Engine troubles continue with A320Neos. This is leading to Indigo having to ground three planes.

What’ll be interesting to watch -

A) Does Indigo continue to receive compensation in the coming quarter(s). Most brokerage reports suggested the company won’t receive compensation in the coming quarter(s). This latest trouble may ensure it continues.

B) Does management continue to source A320Neos? Or will they go back to the older model A320Ceos? These engine issues are clearly slowing down the expansion plans of the company. Any decision to go back to older engines would also mean the 15% savings expected in oil usage due to the new aircraft will not materialise fast enough.

Finally, not sure how this news will impact the stock price. Engine issues with A320Neos are known and the stock ideally should not react too much to this (though this a new issue). Also because it is affecting three planes only.

As a flyer and an investor in the company, reading about “dual engine” failure does lead me to break into cold sweat. Any mishap leading to loss of lives will be catastrophic for the company. Hope all concerned parties resolve these issues soon enough so that we can focus on the growth of this business.

(Aman Goklani) #115

Fair enough. Even if the business is considered to be fairly priced at the moment (due to the nature of the industry), one should expect ~15-18% CAGR (including dividends) growth over the next few years. Honestly, I think it’ll grow faster (as the revenues and earnings may grow faster).

Regarding the dividend, the management ideally should use some cash on the books along with the profits made to ensure they balance the growth of the business along with interest of the minority shareholders. However, the growth of the business remains paramount.

(Growth_without Debt) #116

Single accident / incident of plane crash is sufficient to ground Indigo in stock market !
Indigo must focus on safety. If it looses credibility difficult to earn more !

(jajushobhit) #117

This should augur well for the international business.

(manivannan.g) #118

I don’t think it’s Indigo’s fault. It’s Airbus and they’ve confirmed that 1/3rd of their Pratt & Whitney engines are faulty.

(Growth_without Debt) #119

Difficult to judge positive/negative impact by hearing ‘English Name’ as COO. GoAir was not happy with him as his new routes and appointment of foreign pilots are not cost effective decision by him.

New COO job history - Frequent change of jobs - especially at top post, to be taken with pinch of salt !

(Alok Bhola) #120

It entered the 60-million club by handling as many as 63.5 million passengers in 2017

The rate of overall traffic growth, however, slowed to 14 per cent in 2017, against 21 per cent a year earlier, primarily due to less capacity addition by low-cost carriers. A technical glitch with Pratt Whitney engines impacted the capacity induction plan of IndiGo, which is based out of Delhi’s IGI airport.

Despite a slowdown in 2017, 116.7 million domestic passengers took the aerial route mainly because the fares were cheaper due to low fuel price. Low-cost carriers carried the bulk of passengers, with market leader IndiGo accounting for 40 per cent of the flyers.