ET Intelligence Group: India's largest airline by market share, InterGlobe Aviation, appears better equipped than its neighbours to deal with soaring jet-fuel prices, with energy-efficient A320neo planes increasingly dominating the fleet of the carrier that ferries every two of five local flyers.

In the December 2017 quarter, IndiGo recorded better-than-expected financial performance thanks to seasonality, credit received from its aircraft-engine manufacturer, and healthy passenger growth (more than 15 per cent). The tailwind, of course, included a lower statistical base in the year-ago quarter in which demonetisation affected internal travel.

Against analysts' estimates of Rs 5,900-6,000 crore, the airline posted revenues of Rs 6,177 crore, registering a 24 per cent growth. IndoGo's yield — revenue per kilometer per passenger — climbed 6.3 per cent to Rs 3.7, indicating that the airline was able to raise ticket prices despite competition. A combination of these factors boosted the airline's net profit, which rose 56.4 per cent to Rs 762 crore in the quarter under review.

With oil prices rising, IndiGo will likely benefit from its fuel-efficient fleet. The A320neo consumes 15 per cent less fuel than older generation planes. For the March 2018 quarter, the airline plans to enhance its capacity by 24 per cent, which would help it post superior revenues growth than its peers, given its dominant market-share and cost efficiency. At present, a fifth of IndiGo's 153-aircraft fleet consists of the A320neo.

The rise in Brent crude should put pressure on yields and revenue growth at airlines. Indigo reduced its debt by 11 per cent to Rs 2,432 crore in the quarter review, which indicates the airline's sustained focus on costs.

The stock is trading at price to earnings multiple of 16.3 considering its FY19's estimated earnings. At the end of FY17, the airline traded at price to earnings of 22.8. Investors would do well to hold on to the stock given its cost efficiency and dominant market-share of about 40 per cent.