SUMMARY
The shares of InterGlobe Aviation, parent company of IndiGo, recorded a sharp gain in early trade on BSE on April 1, hitting a high of ₹4,282.70 after climbing as much as ₹339.20 per share. The shares recorded a gain of 8.60%. The shares of InterGlobe Aviation were trading at ₹4,272.20, still up by 8.33%. The shares recorded an intra-day high of 4.48% at some point.
However, this was not an isolated instance for IndiGo alone. Other aviation stocks have also seen an uptrend, with SpiceJet shares going up by over 4.4% at ₹10.17 per share at around 9:48 am. IndiGo, being a market leader, set the tone for others.
The sharp rally was due to IndiGo’s announcement regarding the appointment of aviation veteran Willie Walsh as its new Chief Executive Officer. Walsh, currently serving as Director General of International Air Transport Association, will complete his term on July 31 and take charge as IndiGo CEO on August 3.
Walsh has close to four decades of experience in the aviation industry, including his stint as the former head of British Airways. Walsh’s appointment has been seen as a positive move for IndiGo, especially considering its operational hurdles and its next phase of growth.
IndiGo remains the market leader in the aviation industry in India with a market share of about 64%. As of the last week of December, IndiGo had about 440 aircraft in its fleet and performed over 2,200 daily flights. The airline operates to over 95 domestic destinations and over 40 international routes.
IndiGo has managed to carve out a place for itself in the aviation industry in India. Its low-cost strategy and on-time performance have been instrumental in this.
Despite its position, IndiGo faced a major crisis in its operations in December when it was forced to cancel over 4,500 flights due to inadequate preparation for new pilot rest regulations. The crisis was addressed by regulators who reprimanded some of its top executives, including its outgoing CEO Pieter Elbers, for “inadequate overall oversight of flight operations and crisis management.”
Just like any other airline, IndiGo too is struggling with increasing costs. The rerouting of flights because of geopolitical tensions in the Middle East and Pakistani airspace is adding to costs.
There was also a concern regarding the prices of aviation turbine fuel, or ATF, that was impacting investor sentiment. There was a fear that prices would soar to ₹2 lakh per kilolitre, impacting the airline's profitability. However, it was clarified that the high prices are only for chartered flights, and for commercial flights, the prices are increasing only by 8.5%, or ₹1.04 lakh per kilolitre.
Market participants noted that the rally was further amplified by technical factors. Aviation stocks had seen recent declines, leaving them in oversold territory. The positive trigger from the CEO appointment, combined with easing fuel cost concerns, led to short covering and momentum buying, pushing prices higher during the session.
The current situation, in which leadership clarity and low cost concerns are favorable, has positively affected the near-term outlook of IndiGo as well as the entire aviation industry.
In the future, the focus areas for IndiGo would include operational reliability, tackling the crew-related issues, and maintaining the low-cost model while managing the rising costs. Walsh would be instrumental in helping the company navigate through the current stabilization and expansion phase.
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