InterGlobe Aviation soars as Go First bankruptcy opens doors for higher fares, market share

In a capacity-constrained environment, IndiGo will have stronger yields as well as increasing leverage with OEMs of engines and planes, CLSA has said

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InterGlobe Aviation, which operates India’s biggest low-cost airline IndiGo, soared 6 percent in the morning trade on May 3, on expectations of a higher market share after Go First bankruptcy.

At 9.30 am, the stock was quoting at Rs 2,175.25 on the National Stock Exchange, up 5 percent from the previous close amid high volumes. Trading volumes at 1,519,928 shares were significantly higher than the 20-day average of 465,706 shares.

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On May 2, Go First filed for bankruptcy voluntarily with the National Company Law Tribunal (NCLT) and blamed the situation on Pratt & Whitney for supplying faulty engines.

The surprise move is having a ripple effect on its rivals, with IndiGo and SpiceJet stocks gaining, and banks that have exposure to the Wadia group-owned airline.  Central Bank of India took a beating in the morning trade.

Brokerages’ view

Bank of America believes that Go First insolvency will remove 9 percent of domestic supply, which can help other airlines. Go First had a 6.9 percent market share in March 2023, slipping from 8.9 percent in CY22 and 10.7 percent in CY19.

Also Read: MC Exclusive | Cash burn of Rs 200 crore a month leaves GoFirst broke: CEO

IndiGo’s competitive position has also improved and it is well-positioned to take advantage of the opportunity presented by the domestic market, BofA said. It has a “buy” rating on the stock and a target price of Rs 2,700 a share.

“The market disruption caused by the shutdown of operation is likely to reduce competitive intensity, and could benefit airfares, especially amid the recent strong traffic trends,” Jefferies’ Prateek Kumar said. This is positive for players like Indigo and Spicejet.

In the capacity-constrained environment, IndiGo will have stronger yields as well as increasing leverage with global original equipment manufacturers (OEMs) of engines and planes, according to CLSA. It has an “outperform” rating on the stock, with a target price of Rs 2,450 a share.

The stock has gained over 20 percent in the past year while co-founder Rakesh Gangwal and his family slowly trim their stake. As of March 2023 end, the Gangwal family held 16 percent in the company.

After Covid lockdowns and the reopening of the economy, air traffic has been picking up in India. As of April 30, Indian airlines transported a record-breaking 4,56,082 passengers in a single day, more than February 2020 levels, almost a month before coronavirus forced a lockdown.

India is on track to surpass the 500,000 passenger mark in a day by this year-end.

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