IndiGo draws upgrades with focus on yields even as it adds capacity

During FY22 and FY24, IndiGo has been following a clear of expanding capacity at a brisk pace and boosting - per km per paid passenger. During this period, the airline has been adding capacity in the range of 22-63% on a year-on-year basis. In the same period, yield jumped 19% to ₹5.08 per kilometre in FY24.

This shows that aggressive has kept it ahead of its peers. Even in the March quarter, yield rose by 7% year-on-year to ₹5.19 per km.

IndiGo's strategy makes it clear that the carrier wants to replicate the same strategy in international markets as further market share gains in the domestic market seem to be limited. At present, there are capacity constraints in the domestic market.

In its post-quarterly earnings call, IndiGo said on average, it will add one aircraft every week in FY25. It has also ordered thirty wide-body A350-900 aircraft which are likely to be delivered by 2027. At present, nearly 10% of the total fleet in India's aviation industry is wide body.

ET Bureau

IndiGo is likely to gain from its approach of expanding capacity more aggressively than its peers - both domestic and foreign carriers operating from India. A key reason for this is the changing travel patterns of Indian travellers. Increasingly, many middle-class Indian travellers (especially young travellers between 18 and 25) have shown a high inclination to opt for "experiential travel" in foreign locations. This is set to offer margins higher enough to compensate for the budget airline's increased operating costs.

IndiGo aims to start offering customised business class offerings in the coming months. The airline currently flies to 88 destinations in India and 33 internationally through code-share agreements.

As for its financial performance, in the March quarter, revenue jumped 25.9% to ₹17,825 crore thanks to strong passenger volume growth. In the same period, net profit soared two times to ₹2,060 crore.

On the valuation front, the airline company is trading at an estimated enterprise value of 11.6 times the operating profit (Ebitda). Its past two-year average EV/Ebitda is 20.7.