Stiff competition! Why IndiGo is unlikely to gain incremental market share going ahead

Stiff competition for IndiGo: InterGlobe Aviation, the owner of IndiGo, is expected to face challenges in gaining market share in the near future due to intense competition. The airline gained a significant share after Go First’s bankruptcy in May last year. From April to September 2023, IndiGo‘s market share rose to 63.4% from 57.5%. However, in November, it dropped by 160 basis points to 61.8%, as per the Directorate General of Civil Aviation (DGCA) data. During this period, SpiceJet‘s share increased to 6.2% from 4.4%, while Tata Group’s airlines such as Vistara, Air India and Air Asia remained relatively steady at 26.5%.
According to an ET analysis, historical data suggests that airlines tend to gain market share and improve margins during periods of weak competition. This was true for InterGlobe Aviation as well, as its operating margin before depreciation and amortization increased from 20.9% in the March 2023 quarter to 31.2% in the June 2023 quarter. Despite higher crude oil prices, factors like funding constraints, aircraft delivery delays, and the comparatively weaker financial positions of competitors played a role in shaping InterGlobe’s performance.
However, the factors quoted above are no longer favorable for the airline, the analysis said.

SpiceJet recently secured Rs 2,250 crore in December through warrants, addressing its financial needs. Akasa Air also resolved pilot shortages, and the domestic aviation industry plans to add 150 aircraft in the next year — the most significant addition in four years.
With these changes, analysts anticipate that InterGlobe Aviation might struggle to expand its market share in the upcoming months. The airline took action to protect its market share by removing fuel charges on Thursday, initially imposed due to higher aviation fuel prices. The removal of fuel charges has resulted in lower airline ticket prices.

The growth of airline revenues is projected to slow in the next fiscal year. Bloomberg’s estimates suggest that InterGlobe’s revenue will grow by 10.7% in FY25, less than the expected 21% growth in the current fiscal year. Predictions suggest a decline in the airline’s Ebitda margin from estimated 22.5% in FY24 to 21% in FY25.
SpiceJet recently raised funds and resolved its pilot shortage issue, while the domestic aviation sector is set to expand with the addition of 150 aircraft in the next 12 months. These factors, along with the overall growth in the industry, are expected to make it challenging for InterGlobe Aviation to gain incremental market share in the coming months. In response, the airline has taken measures to defend its market share by removing fuel charges, resulting in lower ticket prices.
Analysts predict that InterGlobe Aviation’s revenue growth will slow down in the next fiscal year, with estimated growth of 10.7% for FY25 compared to the expected 21% growth for the current fiscal year. The company’s Ebitda margin is also expected to decline from 22.5% in FY24 to 21% in FY25. In terms of valuation, InterGlobe Aviation’s enterprise value (EV) is currently 8.9 times the expected Ebitda for FY25, compared to a multiple of 10.1 in FY23.
Read From ET | InterGlobe Aviation unlikely to gain share
These factors indicate that InterGlobe Aviation may face challenges in gaining market share and maintaining its financial performance in the medium term.