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ICICI Securities Report
Airlines tend to enjoy higher gross spreads (revenues – fuel costs) when fuel prices are low. However, they are unable to completely pass on the rise in fuel prices through higher fares.
We have shown historical spread movement in detail in this report to validate the argument. Current fare levels (Q3 FY22 IndiGo passenger revenue per available seat-kilometer of Rs 3.51) are higher than past (passenger revenue per available seat-kilometer of Rs 2.5/2.7 in FY10/11 when crude was in the range of $100-120).
As such, incremental scope to raise fares may be limited unless there is supply correction in the system.
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