Interglobe aviation financial services
UBS on IndiGo
Maintain Buy; Hike TP to Rs 5400 from Rs 5300
Strong show marred by forex; Outlook robust
Q3 better demand and in line costs offset by sharp USD appreciation
Strong aircraft addition; taking steps to mitigate forex
GS on IndiGo
Maintain Buy; Cut TP to Rs 4650 from Rs 4800
Operational beat; positive near term demand outlook
Believe IndiGo’s competitive positioning is strengthening
Cut FY26/27 EPS estimate to factor in forex
Hi Chandragupta, sorry for the late reply. It’s been some time since I checked the forum because of vacations. Let me try to elaborate on my understanding of international foray and domestic growth.
International segments are indeed competitive, but fundamentally, their success depends on demand, trade links, and bilateral rights. If you observe the commentary of foreign carriers, especially those based in the Middle East, you’ll notice that they are constantly advocating for an increase in bilateral rights.
Bilateral rights are usually agreements between governments, negotiated through diplomatic channels. These agreements often take years to become fruitful, but they can also disappear overnight due to diplomatic tensions. In many cases, bilateral rights are structured to protect domestic players from the dominance of wealthier foreign airlines. Scarcity of slots in important airports globally. A significant number of bilateral rights remain underutilized by Indian carriers, representing a large growth opportunity. International flights also generate valuable foreign exchange, which benefits airline balance sheets since most operational costs—like leasing charges, fuel, and insurance—are paid in foreign currency (usually in USD). While international routes typically have higher airfares, the operational costs remain comparable to domestic flights (with similar distances and flight times). This results in better margins for airlines.
Another key factor is the demand for international travel:
Indian airlines reportedly serve less than 35% of the total international market, leaving a huge opportunity for growth.
There is a strong potential to replace one-stop flights with direct connections, which passengers now prefer, especially post-Covid. With codeshare agreements in place, Indian airlines are leveraging data and gaining better insights into which international routes they can serve independently.
I generally disagree with the idea that domestic aviation growth in India is limited. The country still has significant under penetration in terms of:
While these numbers may seem like mere data points, AAI data highlights the following:
Many Indian airports are growing at an annual rate of 10%+ YoY. Metro airports like Delhi and Mumbai, which account for a bulk of airline sales, face severe congestion. This congestion restricts airline expansion and increases operational costs.
However, new airport projects like Delhi’s and Mumbai’s second airports are expected to unlock new routes and capacities, benefiting the domestic sector immensely.
Another critical metric to track when assessing domestic growth is the Passenger Load Factor (PLF). Indian airlines are consistently achieving PLFs above 85%, which ensures healthy realizations and profitability.
Cargo remains a significant revenue driver for airlines, especially on international routes, where it is even more lucrative than domestic operations. Cargo operations are growing at 10% YoY. Airline managements have indicated that cargo will continue to provide substantial revenue in the coming years.
With new aircraft inductions and the introduction of new routes, the cargo segment will benefit further.
While I don’t want to comment on Indigo’s experiment with cargo-only aircraft, it’s worth noting that such experiments could shape the future of cargo operations for Indian airlines.
Interglobe - Bringing out the A-game when it matters
Currently, over 60 aircraft are grounded due to P&W engine issues, and management believes this number would be in the 40s by FY26.
Indigo added 4 international destinations in 3Q and would add two more in CY25, taking the total count to 40.
Added 2 new domestic destinations and a total of 50 routes in 3QFY25
Air travel saw substantial growth in 3QFY25, thanks to the festive period, yearend holidays and a general rise in consumer spending, leading to robust revenue growth.
Ancillary revenue continues to grow as cargo business gathers pace for INDIGO.
IndiGo Stretch: Delhi-Bangalore stretch started recently and Delhi-Chennai to
start soon, as per management
10 more metro-to-metro routes to be started in CY25
Indigo - World’s 2nd fastest growing Airline in seat capacity during 2024
IndiGo recorded a 10.1% growth in seat capacity compared to 2023.
The fastest-growing airline is Qatar Airways, which grew by 10.4%.
IndiGo is also ranked fourth globally in terms of flight frequency growth, increasing by 9.7%.
IndiGo operates one of the largest fleets of A320neo aircraft.
IndiGo’s domestic seat capacity dropped by 9.6%, but its international capacity increased by 18.8%.
Interglobe Aviation - Between Dec-24 and Jul-25, IndiGo is introducing ten international routes, of which, seven are monopolies!
Summary of Investor Meet 2025:
An update on a key competitor for Indigo :
Incase someone wonders what benefits do A321 XLRs bring to Indigo , here is a not so technical video on the potential benefits of the aircraft for Indigo .
My Takeaways: The aircraft is designed to take on routes farther than what existing A320s can fly but with a seating capacity lower than the A330s/350s/787 , so it would allow Indigo to fly point to point on international routes with traffic not enough to justify a widebody (330/350) for example flights originating from Tier 2 cities in India to Tier 1/2 cities in Asia , EU , Africa and Australia or flights from Tier 1 cities in India to Tier 2/3 cities in those regions which up until now were connected through a central hub like Dubai, Singapore , London .
How would this add value to the customer ? -
That’s about the barebone aircraft , but we would have to see what type of seats and seat layouts does Indigo use for these XLRs . A narrow seat pitch , paddings and cramped up seats could lead to passengers opting for the widebodies instead , since these wouldn’t be the typical 1-2 hour domestic routes where passengers could adjust , pricing and catering too would be a major factor here .
In summary- the XLRs allow for point to point medium and long haul routes which would save time , hassle and maybe some money too for the customer , but in return they would have to compromise on the cramped up feeling of the narrowbody . We would need to wait and see how Indigo designs the seating layout and seats considering they would have to fly longer and also the catering that they would offer on these routes as these would be a major factor influencing the market acceptance of the product , not to forget the most important thing the PRICE at which they launch these routes and one considering Indigo is know for its CASK leadership lets see how they deliver this product.
“If you want to be a millionaire, start with a billion $ and launch an airline” so said Ol’ Virgin’s Branson.
Proving this age Ol’ cliche wrong is our very own Rakesh Gangwal. However one feels this rather rare feat in aviation history is not studied enough by the masses.What follows is an attempt to remedy that.
By selling down his stake from 36.6% to 8.5% in IndiGo , the company he co-founded Mr.Gangwal has raised Rs. 35,935 cr(4.2bil$) before tax. The value of his residual stake is Rs.16,000cr(1.9bil$) & growing. This takes his post Covid haul to Rs.56,935cr(6.85bil$). Oh yes, there’s also a pre-covid haul from the IPO dilutions.
In 2006 when an American professional par excellence met an Indian entrepreneur with an imagination , IndiGo was conceived. A company where the attention to detail is visible across every nook and cranny. The sexy ‘6E’ trademark/allsign is just one example of the witty humour peppered ever so lightly across the user experience. An experience , it provides at a cost that is unmatched. “Being the lowest cost is the only MOAT there is in aviation.” An Axiom the company has grilled in its DNA.
From its IPO almost a decade back IndiGo has generated a 23% CAGR(including dividends) which has led to just one of its 2 promoters to have enough capital to buyout the entire SAIL if he so chose to & still have spare change to start a new airline. The latter is something he seems un-interested in atleast as I write. He has chosen instead to invest his fortune in a diversified fashion and is helping Southwest get out of the mess it has been in. That he has invested more than a hundred million of his own dollars in the company is a testament to his skin in the game.
Economy and Thrift should extend to the length of this essay if one has learnt anything from IndiGo.
Discl - InVested !
