INDIGO - InterGlobe Aviation Limited Share Price

During the earnings call for the first quarter of fiscal year 2026, IndiGo management provided a forward-looking outlook despite facing several external challenges, including geopolitical tensions, airspace restrictions, and the AI171 accident. The company reported a total income of Rs.215 billion for the quarter, a 6% increase year-over-year, with a profit after tax of Rs.21.8 billion (approximately Rs.2,200 crore) and a margin of around 11%.

Management highlighted their commitment to structural growth, emphasizing confidence in long-term opportunities in the Indian aviation market. Despite the turbulent first quarter, passenger growth remained strong at 12%, twice the industry average of 6%. Looking forward, they anticipate stabilization in trends for the second quarter and a rebound in the third and fourth quarters.

Key forward-looking points include:

1. Capacity Guidance: IndiGo maintains an expectation of early double-digit capacity growth for the full year despite anticipating mid-to-high single-digit capacity increases for the second quarter due to seasonal softness.

2. International Expansion: The signing of a Memorandum of Understanding with Airbus for 30 additional widebody aircraft orders aims to enhance long-haul connectivity starting from deliveries in 2032. In the interim, a lease agreement with Norse Atlantic for six widebody aircraft will support service expansion to Europe.

3. Route Enhancements: The airline plans to increase flight frequencies on current international routes and expand its stretch offering on select international markets, indicating a focus on catering to the growing aspirations of Indian travelers.

4. Partnership Development: New codeshare agreements with several international airlines, such as KLM, Delta Airlines, and Jetstar, are expected to enhance connectivity for passengers and grow brand recognition.

5. Investment in Innovation: The launch of IndiGo Ventures to invest in aviation startups and a MoU with the Bengaluru International Airport for MRO capabilities signify a strategic push towards innovation and efficiency in operations.

Overall, while the company faced challenges during Q1, management expressed optimism regarding recovery and growth, bolstered by a solid operational foundation and expanding market opportunities.

Here are the major questions from the Q&A section of the earnings call transcript along with detailed answers:

1. Question: "On the comment on the 2Q ASK guidance, at mid to high single digits on a base of last year 2Q, is it a reflection of the slowdown?"
   Answer: No, the guidance reflects the typical softness seen in Q2. Historically, this quarter is soft, particularly domestically. We adjusted our fleet holistically to avoid excess capacity while gearing up for a strong Q3. We remain committed to an early double-digit growth for the year.

2. Question: "How do you see the A321XLR deliveries shaping your guidance post FY26?"
   Answer: We still expect delivery in FY26. Alternative aircraft are in place if necessary, but we anticipate XLRs will support our growth strategy starting next year.

3. Question: "What's the initial feedback on profitability for new international routes, especially against increased competition?"
   Answer: We've seen positive response and strong demand on routes like Amsterdam and Manchester, and we remain well-positioned against competition due to our cost leadership and network reach.

4. Question: "Can you comment on your yield strategy given the lower yield trends reported?"
   Answer: The yield drop was influenced by external events, particularly in May and June. Initial strong performance in April indicated healthy demand, and we expect stabilization and recovery in the coming months.

5. Question: "Has employee cost increased due to FDTL implementation?"
   Answer: The first quarter reflects normal annual increases. The implementation of FDTL will be absorbed through efficiencies and is still being assessed for any required adjustments.

6. Question: "Regarding operating vs. finance leases"”what are the advantages?"
   Answer: Finance leases allow ownership options post-lease, crucial for our MRO strategy. While they come with increased initial depreciation and interest costs, ownership will benefit operational control.

7. Question: "How do you view the recent increases in bilateral agreements, particularly with Kuwait?"
   Answer: On a holistic level, increased bilaterals reflect mutual recognition of demand. Indian operators, including IndiGo, are poised to utilize these increasing opportunities once agreements are reached.

8. Question: "Can you provide insights into your expectations for Q3 and Q4 capacity?"
   Answer: We aim for double-digit growth in those quarters. Demand forecasts are strong, and we will adjust our capacity with new deliveries and damp leases as needed to meet anticipated demand.