Indigo Q4 hit by rising maintenance costs, but yields outlook good

While the airline’s March quarter (Q4FY23) results were a bright spot, it fell short of analysts’ estimates, reporting a net loss of approx. 317 crores for the entire financial year. That comes at a disappointing EBITDA (earnings before interest, taxes, depreciation, amortization and aircraft engine rental) levels, even as yield — a key gauge of pricing — remained stagnant. The yield fell from a multi-quarter high of Rs.5.38 in Q3 to Rs.4.85. Also, Q4 is seasonally weaker than Q3.

Indigo’s abiter came around 9 o’clock 2,890 crore vs Kotak Institutional Equities estimate 3,443 crores. In Q4, IndiGo saw a sharp jump in maintenance cost. Analysts at Kotak note that the higher maintenance expenses reflect IndiGo’s cost of compensating for the loss of grounded aircraft volumes, which account for over 10% of fleet capacity, through lease extensions of older aircraft.

However, strength in yields should help drive profitability going forward. In the earnings call, the company reported strong demand and improving yields in Q1 FY24. “As per our airfare tracker, 30-day domestic forward prices are up 12% YoY in Q1FY24 and 15-day prices are up 20% YoY in Q1FY24,” a May 19 report said. said analysts at Motilal Oswal Financial Services in a report. The brokerage has raised its revenue estimates for FY24/FY25 by 12%/17% as ticketing revenue is witnessing a strong pricing trend. “We keep other estimates largely unchanged. wrote the analysts.

Hence, apart from strong demand, tight supply will also support the yield. Also, supply has been affected due to the closure of Go First operations. It goes without saying that investors should track developments on this front. In addition, IndiGo aims to increase its presence in the international market where the per unit cost is lower as compared to domestic operations. It expects international capacity mix to increase to 30% in FY24 from 23% in Q4.

To be sure, investors would do well to keep an eye on the intensifying competition in the domestic aviation sector with the entry of Akasa Airlines and the resurgence of Air India Group. At present, Indigo stock is hovering around its 52-week high. 2332.95 and is almost 50% higher than its pre-covid high.