Aviation Sector Check - An Ode To 2016; Upside Scenario Analysis From Lower Crude Prices: ICICI Securities

ICICI Securities Report

InterGlobe Aviation Ltd. reported its highest spread of Rs 0.54 per available seat kilometres in 2016 driven by an overall tight supply situation as well as favorable crude prices. We wanted to highlight the profit scenarios under similar possible favorable conditions for IndiGo in this note.

While an overall supply tightness prevails as of now, crude is still near $80/barrel of oil, currently. However, any dip in crude prices can rekindle the possibility of spread expansion beyond what is being factored in now, leading to a material upside to earnings.

Currently, our earnings estimates factor in normative capacity growth (+10/15% in FY25/26E) and spread compression from the highs of Rs 0.41 per ASK in FY24 to Rs 0.37/0.35 in FY25E/FY26E basis rise in non-fuel costo of available seat kilometre.

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