IndiGo's Cost Management, Fleet Expansion Fuel Morgan Stanley's Bullish 25% Upside

Morgan Stanley notes that InterGlobe Aviation Ltd., is poised for strong growth, maintaining a 'buy' rating with a price target of Rs 7,100. This target price implies an upside of 24.9% from the current price of Rs 5,683.50.

Citi's positive stance is driven by IndiGo's strategic pivot towards international expansion, its sustained cost leadership and underpenetrated air traffic demand in India.

The demand outlook for the Indian aviation industry remains strong, supported by an increasing propensity for Indians to travel, expanding airport infrastructure, a boost in state-level tourism, and the overall low penetration of the air travel market.

Management confirmed that while volumes moderated in the second quarter, this was due more to lower aircraft supply than weak demand. IndiGo is leveraging its large fleet, expanding network, and attractive On-Time Performance to boost traffic. The airline expects its Available Seat Kilometers, a key capacity metric, to grow in the early double digits year-on-year for fiscal year 2026.

IndiGo is placing a strong emphasis on international routes, including long-haul operations, with plans to make Indian cities into key hubs for international travel. The strategy involves connecting even smaller Indian cities directly to its international network.

The pace of international expansion is set to accelerate with the expected delivery of the XLRs or extra long-range aircraft in fiscal year 2026 and wide-bodied Airbus A350 aircraft in calendar year 2027. Currently, long-haul routes are being managed using damp-leased planes.

The company is planning a major change in its aircraft acquisition strategy. Historically reliant on operating leases, management indicated a move toward acquiring more planes through full ownership or finance lease models.

Despite the complexities of expanding into long-haul international routes, cost control remains a core focus. IndiGo already boasts one of the lowest CASK or Cost per Available Seat Kilometer figures globally, and management expects to maintain this cost leadership among competitors.

Citi notes, however, that recent adverse foreign exchange trends could pose a temporary challenge to cost management. The airline's new Business Class product and loyalty program are also expected to further support and sustain strong passenger demand.