Its a food for thought. Not a possibility spectrum discussion. Since the exit of Rakesh Gangwal wasn’t a happy exit, and just after exit he puts up his money into another airline company, its evident how he wants to workout things his way in the skies. So, like a bollywood script, its a thought, would he come back to India and make another airline giant the way indigo was made.
Again, food for thought! You may ignore as well!
Latest Q2FY25 quarterly results. https://www.bseindia.com/xml-data/corpfiling/AttachLive/139ac3e3-14f8-4149-b57a-a1e8253b7f32.pdf
Bad result 
negative earnings
Results are saddening. I put up a table to analyse if there are some green sides I might be missing. Here it is:
Analysis:
Not much of an exciting results. Only good things I could find were:
Some inferences I could make are:
Overall, a setback results. Perhaps, next quarter may bring back the profitability given the festival seasons and launch of business class adding to top line.
However, yield, load factor, and debt would be very crucial factors to follow.
Discl: Remain invested. Above words not to be construed as any advice.
Out of the 59k Cr Debt, 57k Cr is lease liabilities, which represents their expanded fleet (as they operate on a leaseback model). The company does not have any long term debt on their balance sheet and have in fact reduced their short term borrowings by 4.8% this quarter.
Zerodha’s take on Indigo results.
I believe there are many unspoken aspects in the results. When examining the global aviation industry, it becomes clear that most major players are currently facing capacity constraints. My general observation is that Boeing is in a state of meltdown, while Airbus is struggling to keep up with orders. IndiGo has unfortunately become a victim of the latter. Additionally, there is an ongoing engine crisis.
Due to inconsistent supply from Airbus, IndiGo has been impacted significantly. They have been compelled to retain older aircraft and extend leases, as well as enter into short-term agreements with SmartLynx, which has provided them with less efficient fuel-consuming planes. This situation has coincided with rising fuel prices.
I anticipate that this pain will persist for some time, as there are no short-term solutions available—everyone in the industry is facing similar challenges. I expect expenses to remain elevated for several more quarters. Furthermore, with the introduction of new aircraft models that IndiGo is not accustomed to—such as those featuring business class, loyalty programs, and ovens—it will be very interesting to observe how this unfolds.
I notice many individuals here analyzing the company using Excel metrics. I would encourage you to revisit the fundamentals of the airline business.
+1, I have been unable to model growth with margin expansion in this business. Capacity growth is going to be 10-12% and revenues can grow mid teens. On top of that some or other excess costs can come in the P&L which can penalise the earnings. The last years base is so strong that it is hard for them to beat that from margins standpoint. One has to hold this through the cycle and expect the next peak will be substantially higher. Volatility is nature of airline business.
If anyone is tracking the sector, this is a significant development. Tou can refer to the case of spicejet vs the lessors. And this is a good opportunity for GIFT city. Air India I think has already leased their A350s via Gift.
the Q2 is soft for Indigo and for every airline player in the Industry. The thing is Q2 FY24 was v very high base bcoz last year all cylinders fired together, spice jet was facing huge issues + Jet airways had to shut down operations. Hence, Q2 FY23 went well and base for FY24 was set high.
Additionally, if we see the results of this quarter, the lease liabilities had increased by 3x I guess. As they did damp leasing of places at a high cost. Plus ASK increased by good chuck. They increased the capacities in this quarter and hence cost was upfront. Plus in airlines business, cost is always upfront and operating leverage play comes later on. Additionally, wider economy didnt do well in Q2, hence Indigo suffered. Going forward, FY23 base id v high, plus company is in investment phase, hence costs will hit the income statement as ASK will increase and occupancy will increase slowly. Though v good long term play, but pain in short term.
Rival Watch:
Found a slide from an Air India document. Sharing it here with my opinion.
One of Air India’s major margins comes from international travel, and this is something Indigo has struggled with. I think this is one reason why Indigo appointed Pieter Elbers as their CEO, given his strong reputation for building an international airline.
For a country like India, we do not have enough airports, nor do I believe we have absolute premium demand. At some point in the future, domestic operations will become commoditized if they aren’t already. The simple reason is that all types of carriers offer the same fare for the same route. Hence, it’s a natural transition to shift to international operations. I believe this is why Indigo has made significant changes in its management.
Indigo has done phenomenally well in the past with domestic operations, but the future lies in international markets. This explains many of the changes we are seeing—stretch seats (business class), a loyalty system, and hot meals. All these will eventually lead to higher margins in the future.
Right now, despite having the largest capacity in India, Indigo is still lagging in the international market. The main reasons are narrow-body aircraft and bilateral rights. Narrow-body aircraft can fly a maximum of five hours, but this comes at a cost: fewer passengers and disgruntled passengers due to no hot meals and uncomfortable seats. The experience on a two-hour flight is vastly different from that of a five-hour flight. To make matters worse, on the routes Indigo operates internationally, foreign carriers often offer a superior and more comfortable product (wide-body aircraft) at almost the same cost. Case in point—Singapore Airlines operates the A380 on the same Mumbai-Singapore route where Indigo uses the A321. There’s hardly any price difference.
I personally think this is what’s hurting Indigo at the moment, and it’s where Air India is taking a lead.
Indigo has taken the initiative and ordered wide-body aircraft. However, these won’t be arriving anytime before 2027. Regarding Air India, I believe they are not as focused on domestic operations. You might argue that Air India Express (AIX) fills that gap, but if you look at the latest winter schedule, even AIX is adding more international flights.
Back to Indigo: I think they are currently focusing on strengthening their existing stations, which means adding more Indian cities to an international destination they already serve. For example, Colombo was previously connected only to Chennai. Now, it’s also connected to Delhi, Mumbai, Bangalore, and Hyderabad. This is a good step. On the tourism front, the sector is performing well, and many Indians prefer to vacation abroad in destinations that aren’t far from India.
However, what differentiates Air India from Indigo is that while Indigo is primarily connecting Indian passengers internationally, Air India is positioning itself as a transit hub via Delhi and Mumbai. This means Air India can cater not only to domestic demand but also to passengers from other countries transiting through India. For example, a person from Georgia can fly to Colombo via Delhi.
On wide-body operations, Indigo has wet-leased 777s from Turkish Airlines. Perhaps the idea is to train their crew on it. But from the feedback I’ve seen, the experience has been extremely subpar for passengers. Since it’s a Turkish aircraft, regulatory issues have been a problem. I suspect this has been an expensive experiment too. So far, these operations have been riddled with issues. For example, flights have been downgraded to an A321 with a technical stop, and passengers on Twitter are sharing horror stories. On the brighter side, using the Turkish hub in Istanbul, Indigo is able to transit passengers to Europe and the US. The pricing has been softer, but the overall experience is not up to the mark.
While Indigo has always been cost-focused with a single aircraft type, this strategy might hurt them in the current scenario. Air India, on the other hand, has been scrambling for any available aircraft—narrow or wide-body. They’ve taken five Delta 777s, six aircraft from Etihad, six A350s from Airbus (originally destined for Aeroflot), and 55 737 MAXs that were meant for Chinese carriers. While they are still much smaller in fleet size, Air India had 55 wide-body aircraft post-privatization, offering significant international capacity. There are also rumors of Air India acquiring six 777s from their JV partner, Singapore Airlines.
In my opinion, money in Indian aviation will be made in international operations. Air India has had a massive head start in this area, while Indigo is still playing catch-up.
Hey Baibhav, good insights, adding more from my experience and understanding.
India’s Air traffic is bound to increase so Indigo will always have an edge over other Airline. Still many tier two/three cites needs Air connectivity and we prefer cost effective options so overall bright potential to grow. In UK/Europe there have been many low cost Airline which grew and working wall (such as EasyJet) so that will be a MOAT for Indigo.
AirIndia take an edge over international connectivity and ordering bigger and wider craft. So both Airlines adopting different approach and have pros/cons. Overall India as Aviation hub, huge potential to grow as compared to the other part of world.
My experience with Indigo through Istanbul for London flight was okey only, not wow and need many improvements.
Hi Amar, thanks for the feedback. While I agree with you, as investors we should be looking at the margin expansion. Tier 2/3 cities have quite less margins(I believe in single digits) unless indigo has monopoly on the routes. Indigo does have that at a lot of places today.
Take my hometown , Bhubaneswar , as an example. Until 6 months back it had a total of 32 departures to 8 cities. Barring 12 flights to delhi and Mumbai served by various airlines, indigo had a monopoly on the routes to other 6 cities with high pricing. It continued for years. Until recently when AIX came on a rampage, on back of their extreme quick deliveries of 737s and their merger with Air Asia. Now while the city pair still stands at 8, the departures in bhubaneswar have risen to 58. Because AIX has started the city pairs.
There are still so many airports and routes in India where they have a monopoly. According to a money control article in 2023, 552 out of 1048 routes in India , indigo is the sole operator.
There is a reason I have shared this example.
As of December 2020, the total number of commercial aircraft in India was approximately 650. Here’s the breakdown by major airlines:
• IndiGo: 280 aircraft
• Air India: 118 aircraft
• Vistara: 40 aircraft
• GoAir (now Go First): 36 aircraft
• AirAsia India: 18 aircraft
• SpiceJet: 36 aircraft
You see, indigo always has been a beneficiary of capacity chaos. If you combine all the aircraft’s of the other players, indigo had more capacity thanks to its robust operations and cash discipline, something alien to all the other competitors.
Everytime a competitor introduces a route, indigo will add multiple frequencies on the same, sometimes at the same time as well, and eventually drive them out of the competition by forcing them to exit. This is what been blessed with capacity looks like.
Every 5-6 years, some airline will declare bankruptcy, and indigo will eat away its slots and routes as well in record time. Another blessing of capacity.
Every airlines was extremely small to take on the Goliath and their financial sheets showed the results.
You see, capacity is something that cannot be solved easily, even with deep pockets. Why? Because of duopoly in the aircraft manufacturers, Boeing and Airbus. They have delays up to 5 years now and if you go and place an order, you would start getting deliveries 6-7 years later. That is how bad it is. Last few months we have been seeing airlines in India putting orders for 400-500 aircrafts each. Let me tell you, all the deliveries for them start post 2027.
But times have changed a bit. Last few years of uncertainty and covid opened some exciting options and our friend air India grabbed them quickly. In fact, a new competition Akasa, did impressively also. Air India grouped merged 4 airlines into 2 and gave headache to 6E by going all out.
Let’s look at the current capacity numbers today:
As of December 2024, the total number of commercial aircraft in India was approximately 773. Here’s the breakdown by major airlines:
• IndiGo: 387 aircraft
• Air India: 210 aircraft
• Air India Express: 90 aircraft
• Akasa: 26 aircraft
• SpiceJet: 60 aircraft
On a group wise level: Here’s the breakdown by major airlines:
• IndiGo: 387 aircraft
• Air India Group: 300 aircraft
• Akasa: 26 aircraft
• SpiceJet: 60 aircraft
You see, on a group level, AIX has come very close, thanks to the sanctions on Chinese, the Russians and Covid-19. Both AI and AIX are competing with Indigo domestically and internationally as well, sometimes under cutting 6E by premium seats. And AIX has been able to quickly add flights to the domestic network as well, taking away a lot of space from indigo.
I have tried to justify why i feel domestic seats feels commoditized . And as shareholders why we should expect more action internationally as it provides scope for margin expansion. And why tier 2-3 cities might not be game changers. Because its easy to replicate . And so many airlines died painting a story of domestic demand and connectivity in the past.
Excellent remarks Baibhav, this is why this forum is so remarkable. As a shareholder, will be you be holding this?
Disc: I am invested so might be biased.
Do your own due indigence before taking any call 
Hi Amar. Thank you for your kind words. Have been holding indigo before it was listed thanks to unlisted markets. Doubled my holdings in covid after seeing the cash balance in May 2020. Has been a fine journey for me.
One of the challenges tracking aviation is that not many conventional news outlets cover them because they are extremely technical in nature. But this is an industry which has a lot of enthusiasts who track each and every move of airlines. Im an enthusiast as well and that what got me into the indigo stock eventually.
I want to contribute to this forum by sharing niche outlets which do a great job in providing updates. One such website is called Network Thoughts. Its run by a man called Ameya Joshi who understands Network Planning very well, one of the core departments of any airline.
In this particular piece, he interviews the head of network planning at Indigo and has given a lot of insights to track.
Can you elaborate on why you think international routes would offer higher margins?
I think international routes are equally competitive, if not more. Moreover, by branching out into wide-bodied planes, costs would go up at least initially for Indigo. It may take years to get economies of scale in these new types of aircraft. Indigo’s international foray may be driven more out of compulsion than anything else. With an overwhelmingly dominant position in the domestic market, there is limited scope for further growth within India. Especially since passenger growth is turning out to be not as strong as expected. Beyond a point, incremental market share gives no tangible benefits while increasing the risk of regulatory action such as price caps and more. Over the years, the base has also become bigger. Flying international may thus be the only option for Indigo to keep up the growth.
