We have observed recent developments that support our positive outlook on Indigo’s spreads and pose upside risks to its performance. Firstly, Indigo has been gaining significance in higher-yielding routes with low competition within the domestic market. Secondly, Indigo is expanding its presence in the international market through a codeshare agreement with Turkish Airlines, allowing it to enter the Indo-US travel sector. In our valuation of Rs 3,000, we have incorporated spreads at the 75th percentile of historical data, excluding the negative spreads experienced during pandemic. We anticipate upside risks to our spread estimates for FY2024/25 based on these factors. Indigo has achieved a market share of over 70% in monopolistic routes.
According to recent data shared by OAG (official airline guide) in a news report, there is a lack of capacity in the sector, and Indigo is capitalising on this situation. Out of the 1,048 domestic routes currently in operation, 769 are operated by a single carrier.These routes account for 15-20% of the overall traffic and a lower share of revenues in the sector. The OAG data reveals that Indigo holds more than a 70% share in this subset of monopolistic routes, which is higher than its 60% share in the overall domestic traffic. Essentially, Indigo is effectively utilising its capacity to enhance yields, while other airlines are constrained to operate on more crowded and less profitable routes. Additionally, Indigo has captured approximately 85% of the market share in new domestic routes initiated within the past year, ending in February 2023.
Our spread estimates for Indigo factor in 75-percentile of the historical range of `0-0.54/ASK, barring Covid times. We expect it to make new highs in the seasonally strong quarter on the back of GoFirst being absent and it being the first quarter of benefits from the Indo-Europe travel boost.