Interglobe Aviation Ltd

Interglobe Aviation Limited is amongst the fastest growing carriers in the world. Since its inception in August 2006, the company has grown from a carrier with one plane to a fleet of 247 aircraft today. In addition to passenger transportation, the company also undertakes cargo and mail transportation on scheduled flights. The airline offers almost 1,500 daily flights and connects 60 domestic destinations and 23 international destinations. It is India’s largest passenger airline with a market share of 48.2% as of September, 2019. The company primarily operates in India’s domestic air travel market as a low-cost carrier with focus on three pillars –low fares, being on-time and delivering a courteous and hassle-free experience. The company has earned the reputation of being on time.

A uniform fleet for each type of operation, high operational reliability and an award-winning service makes the company one of the most reliable airlines in the world. Its state-of-the-art ‘ifly’ facility is designed to deliver real-time training experience to all its new recruits; this training facility is considered to be one of the best aviation training facilities in India. The company has people-friendly culture and helps the staff find work-life balance. Ten years in a row, the company continues to be amongst the best organizations to work for in India and has been named Aon’s Best Employer, 2017.

Premier domestic air carrier in India: Indigo is India’s largest domestic air carrier in terms of number of domestic passengers flown. It is a low-cost carrier and has widened its capacity in the last 10 years at CAGR (compounded annual growth rate) of 25%.The company has a brand image of delivering high on-time performance and providing competitive pricing. After discontinuation of operations by Jet Airways, the company further consolidated its position and its domestic market share increased. The company has intention for adding new fleets, planning its foray into more international destinations as well as enhancing connectivity between Tier II/III cities in India. It is well-positioned to bolster its market position further.

Low penetration of air traffic in India:The company has stupendous growth prospects due to multiple factors including low penetration levels, favourable demographics, improving affordability, capacity expansion along with addition of new airports and regional routes by airline operators. The company has strong order pipeline and remains in a comfortable position to capture a sizeable share of the expanding domestic market.

Cost competitiveness: The company has large order book with Airbus and it has worked out competitive terms with its vendors for maintenance, thus it has demonstrated lower cost of operations compared to its peers in the Indian airlines industry. Further, maintenance of a single fleet and tight control on overheads contributed to the lowest Cost per Available Seat-Kilometre (CASK) among Indian airlines.

Capacity addition: The company’s management expects Available Seat Miles (ASM) growth at 25% for FY20. It will continue to perform at the same level of growth in FY21 too. Further, the carrier will benefit from efficiency gains due to the transition of its fleet to the more fuel efficient A320 Neo planes. The company has not yet decided on bidding for Air India’s international operations, but will continue to expand organically. This season, the carrier has added 6 international destinations.

Advancement of middle class population: With an increasing working class and a large middle class population, the growth in the demand for air travel is expected to endure. As per IATA, India is forecasted to gain an additional 35.9 crore passengers by 2037. This will be largely contributed by the middle class, whose share in the total population is expected to rise by 20% over the next 20 years.

Strong economic growth: The Indian economy is expected to maintain its growth momentum and its GDP is forecasted to grow on a sustainable basis. As per IATA, per capita incomes are expected to increase to almost USD 5,000 per year in 2036, more than double the current level, thus aiding in air passenger demand. Additionally, improvements in living standards (due to higher incomes) are expected to contribute around 6.1% forecasted average annual growth in Indian air passenger demand over the next 20 years.

Key Risks:
Volatility in crude oil prices: Jet fuel prices account for 35-40% of its total operating expenses and ample proportion of these expenses (i.e. lease rentals, aircraft and engine maintenance payments) are denominated in US$ terms thus company’s earnings remain susceptible to volatility in crude oil prices.

Fluctuation in foreign exchange risks: The company has major forex-denominated liabilities on its balance sheet which has an impact on the company’s profitability due to sharp foreign exchange movements. The foreign exchange expenses includes finance lease obligations and liabilities related to maintenance costs viz., supplementary rentals.