Demand trends in the aviation sector remained robust in Q4FY25 as per various indicators spanning daily traffic, Passenger Load Factor (PLFs), management commentaries and media reports. This is particularly positive considering Q4 being a typically weak quarter followed by seasonally strong Q1. ICICI Securities said that December is typically a seasonally strong month for air travel with total domestic pax up by 4.8 per cent MoM to 14.9 million in Dec’24 (implying average daily passengers of 481k). January 2025 saw the momentum continuing with average daily passengers at 485k (basis 24-day daily data from MoCA).
A big push here was the increase in flights because of Maha Kumbh in Uttar Pradesh. According to media reports, Prayagraj Airport in Uttar Pradesh has been handling over 100 flights per day, a seven-fold increase from just 16 daily flights it used to handle before Maha Kumbh -2025.
“We remain constructive on IndiGo basis continuing the thesis of favourable supply-demand balance in the Indian ecosystem with possible levers of premiumisation and internationalisation,” ICICI Securities said.
PLFs continue to remain above 90% in Jan’25
The analysis report by ICICI Securities stated that PLFs for IndiGo had seen a sharp decline in Q2FY25 to 82.7 per cent but it increased significantly in Q3FY25 to 86.9 per cent with both Nov-Dec’24 having PLF above 90 per cent. This trend has continued in Jan’25 as well with average PLF for IndiGo at 90.6 per cent (basis 24-day daily data from MoCA).
Management commentary on yields
In the Q3 earnings call, management commentaries indicated possible low single-digit YoY decline in passenger yields in Q4. This is better than guidance of mid to high single-digit decline in yields mentioned by the management for Q3FY25 during Q2 earnings call. The guidance of low single digit YoY decline in yields coupled with strong demand trends seen in Jan’25, ICICI Securities said, augur well for IndiGo in a seasonally weak Q4.
Premiumisation to support RASK
In November 2024, IndiGo started its business class offering ‘IndiGo Stretch’ with six flights on BOM-DEL route and by end-Dec’24, all 20 flights on BOM-DEL route offered business class. It launched business class on its DEL-BLR route on 10 Jan’25. As per management, IndiGo is seeing positive momentum in the market regarding the offering and the product has been well-received by customers. By end-CY25, IndiGo is expected to have 40-45 planes (~10 per cent fleet) with premium class offering on all metro-to-metro routes.
For business class offering, per details shared by ICICI Securities, IndiGo will fit each A321neo aircraft with 12 business class seats and 208 economy class seats. Currently, IndiGo has 178 – A320 and 115 – A321 in service. On average, A320s have 186 economy seats and A321 have 232 economy seats. “If we assume 45 A321s of the current fleet may be converted for ‘IndiGo Stretch’ offering and assume fares of Rs 6,000 for economy and Rs 18,000 for business class, we see around 1 per cent increase in total passenger revenue for IndiGo. A substantial portion of higher revenue on premium class could directly flow to profits, it added.
Impact of increasing USD/INR exchange rate and crude oil prices
The Indian rupee has depreciated by approximately 1.6 per cent since the start of the year with the USD/INR exchange rate standing at 86.94 as on 18th Feb’25. Crude oil prices reached a peak of $82/bbl in Jan’25 which led to ATF prices increasing by 5.5 per cent in Feb’25 to Rs 95k/KL.
In the Q3 earnings call, IndiGo’s management had said that it is actively taking steps to reduce this volatility in the financial statement by hedging a part of foreign currency outflow. In Q3FY25, IndiGo recorded a profit of Rs 531 million on hedging shown in other income. Going forward, ICICI Securities said, IndiGo could enhance its hedging positions and the addition of international capacity should provide a natural hedge as well. “While total exposure has MTM movement, IndiGo’s current hedging strategy attempts to hedge 60–70 per cent of cash outflow for the next 12 months,” it said.
Two new airports a positive for aviation traffic growth
While we talked about the demand trends and traffic growth being witnessed by the aviation sector, it is worth noting that Indian Airport infra is amid massive upgrades with 2 new airports – Navi Mumbai, NMIAL and Noida, NIAL – commissioning in Q1FY26, following expansions at Delhi, Hyderabad in CY24. A Jefferies report maintained that infra upgrades are positive for aviation traffic growth. “We like GMR Airports and IndiGo as direct plays in the aviation space,” it said.
India has seen its airports doubling to 150+ in the past 10 years on the back of govt initiatives like the Regional Connectivity Scheme. Privatised airports, however, currently account for over 60 per cent of the overall airport traffic in India and have seen a steady increase in capacities following a mushrooming of air traffic growth. The top 3 privatised Airports, i.e. DIAL, MIAL & Bangalore Airport (operated by Fairfax India) accounted for 20 per cent, 14 per cent, 10 per cent of overall airport traffic in FY24.
With MIAL airport operating at over 90 per cent CU with no scope for expansion, a new airport is coming up just around 35 km from MIAL, NMIAL with an aim to help decongest the MIAL airport and drive aviation growth in the region.
NIAL Airport, however, faces connectivity challenges in near term and has limited public transport options. NIAL is over 80 km away from DIAL and 60km from Noida City center. For NIAL, near-term growth may be driven by only a small shift of low yield traffic from DIAL and growth in cargo traffic, the Jefferies report stated. “Over longer term, as DIAL nears full CU, NIAL may also contribute towards aviation traffic growth in the region. DIAL recently commissioned its expansion to 100 million pax capacity (from 66 million, FY25e CU: 79-80 per cent) with scope to expand to over 120 million capacity,” Jefferies said.