InterGlobe Aviation faces fuel-cost pressure as international expansion underpins recovery

Investment View and Valuation

Motilal Oswal Financial Services Limited, in its July 23, 2026 result update, retains a Buy rating on InterGlobe Aviation despite a weak Q1 FY27 profitability outcome. The broker remains constructive on the airline’s long-term growth strategy, supported by resilient domestic demand, expanding international operations, fleet additions and the eventual normalisation of operations affected by Middle East airspace disruptions and Pratt & Whitney-related aircraft groundings.

Motilal Oswal cut its FY27 EBITDAR and EBITDA estimates by 12% and PAT estimate by 33% because of the renewed Middle East conflict and higher Brent prices and refining margins, while broadly retaining its FY28 estimates. It forecasts revenue and EBITDAR compound annual growth rates of 13% and 47%, respectively, over FY26–28. The broker values the stock at 10 times FY28E EBITDAR to derive a target price of Rs 6,580, compared with the CMP of Rs 5,024.

Q1 FY27 Operating Performance

InterGlobe Aviation’s Q1 FY27 operating performance missed Motilal Oswal’s expectations principally because fuel-cost inflation exceeded pricing gains. Net sales rose 20% year on year to Rs 24,580 crore, broadly in line with the broker’s estimate. Yield increased 21% year on year to Rs 6.04 per revenue passenger kilometre, ahead of the Rs 5.5 estimate, supported by fare increases.

However, RPK was flat year on year at 36.2 billion, below the 37.6 billion estimate. ASK grew 3% to 43.5 billion, while the load factor stood at 83.3%.

Fuel costs accounted for 44.1% of sales, compared with Motilal Oswal’s assumption of 37.8%. EBITDA excluding foreign-exchange loss was Rs 3,290 crore, down 39% year on year. The foreign-exchange loss was Rs 79.3 crore, compared with Rs 150 crore in Q1 FY26.

Demand and Near-Term Operating Outlook

Management said demand remained resilient, with 31.3 million passengers carried during the quarter. Total income rose 19% year on year to Rs 25,600 crore, while PRASK increased 19% to Rs 5.03.

For Q2 FY27, management expects ASK growth to remain broadly flat year on year, stable load factors and PRASK growth of more than 25%, supported by fare momentum. It retained its high-single-digit ASK growth guidance for FY27 and expects early double-digit to mid-teen capacity growth after FY27, targeting approximately 300 billion ASKs by FY30. Management did not provide RASK-CASK spread guidance because of exceptional fuel-price and currency volatility.

Fuel Costs and Profitability Risks

Fuel is the principal near-term earnings risk. Management stated that Singapore jet-fuel prices rose nearly 120% because of elevated crack spreads and Middle East tensions, with blended fuel cost at about Rs 140 per litre in Q1 FY27. Yield growth of 21% did not offset cost inflation exceeding 30%.

Additional pressures include rupee depreciation, supplementary rentals, employee-cost growth and damp-lease exposure. The key swing factors for FY27 profitability are fuel prices and geopolitical developments rather than demand.

Fleet and International Expansion

Fleet and international expansion remain central to the recovery thesis. INDIGO inducted 13 aircraft in Q1 FY27 and ended the quarter with a fleet of 432 aircraft. It returned nine aircraft and redelivered 13 damp-leased aircraft, with most damp leases now returned.

The airline launched Jamnagar services and became the first airline to operate from Noida International Airport at Jewar. Management expects most curtailed capacity to be restored by Q3 FY27.

International capacity is targeted to reach approximately 40% of total ASKs by FY30, compared with nearly 33% before recent disruptions. Growth is expected to be aided by A321XLR deliveries and future widebody aircraft. An MoU with CFM International for more than 1,000 LEAP-1A engines includes engine MRO and support infrastructure.

Liquidity and Balance Sheet

As of June 2026, InterGlobe Aviation had total cash of Rs 52,900 crore, including free cash of Rs 39,000 crore. Total debt, including lease liabilities, stood at about Rs 81,500 crore.

Key Recovery Drivers

• Resilient domestic demand and fare momentum.
• Normalisation of operations affected by Middle East airspace disruptions and Pratt & Whitney-related groundings.
• Restoration of most curtailed capacity by Q3 FY27.
• Fleet additions and continued capacity expansion toward approximately 300 billion ASKs by FY30.
• Expansion of international capacity to approximately 40% of total ASKs by FY30.