IndiGo: Weak rupee to drag earnings; muted Q2 likely, GST impact & more

JM Financial, in its latest note, reiterated a constructive view on the Indian aviation space while maintaining a Hold rating on InterGlobe Aviation (IndiGo) owing to its expensive valuations. The brokerage highlighted that under the new GST structure, the economy class rate remains at 5 per cent, while business class has been revised from 12 per cent to 18 per cent. However, it expects minimal impact on demand as business class passengers are relatively price inelastic.

IndiGo’s profitability is projected to stay muted in the September quarter (Q2FY26) due to elevated ATF prices, a weaker rupee (down 2 per cent since June 2025), and seasonally subdued traffic. JM Financial expects passenger  (PAX) yields to inch up slightly, with PLF showing year-on-year improvement in July–August 2025.

Passenger traffic in July stood at 1.26 crore, down 7 per cent month-on-month, reflecting seasonal weakness. PLF declined across carriers, led by Tata Group airlines (down 290 bps MoM to 78.6 per cent) and IndiGo (down 140 bps MoM to 84.1 per cent). Despite this, IndiGo gained market share, rising to 65.2 per cent (from 64.5 per cent in June), while Tata Group carriers slipped to 26.2 per cent (from 27.1 per cent).

ATF prices averaged Rs 90,100/KL in Q2FY26, up 7 per cent QoQ, tracking higher crude prices. Metro-to-metro routes remained under pressure, with traffic declining 2 per cent YoY in Jan–Jun 2025, compared with a robust 7 per cent YoY growth in overall domestic passenger volumes.

On the global front, supply chain issues continue, with Airbus and Boeing facing backlogs of 8,742 and 6,581 aircraft, equivalent to ~10–11 years of production. Meanwhile, SpiceJet has signed a lease for five additional Boeing 737s to meet peak winter and early summer demand. The airline, which returned to profitability in Q4FY25, will announce its Q1FY26 results on September 5.