Shares of InterGlobe Aviation Ltd rose after the company made a large aircraft order. Later, the stock pared gains but it has still gained about 3% in the last two days.

InterGlobe Aviation, which runs IndiGo, placed the order for an additional 300 planes of the Airbus Neo family. Some of these are long-range planes with high fuel efficiency. The order will add substantial seat capacity to its existing fleet of about 245 planes.

However, going by the order backlog with the manufacturer, the order could take about five to six years to get executed. That would mean some of the gains that could accrue from the new efficient planes would take a long time.

IndiGo’s volume growth has been quite strong in recent times, and it added about 56 new planes in the last 12 months. In fact, analysts have noted that on its existing base, the firm will need to add about 350-400 aircraft to grow at about 20% in the next five years. So as such, the order for the new aircraft is being seen as timely.

Besides, IndiGo’s fleet has aged considerably lately. The fleet’s average age is about six years, while back in 2015, this stood at about 3.7 years. An ageing fleet tends to increase operating costs substantially. “Higher maintenance costs from the ageing fleet have already inflated IndiGo’s cost structure, and therefore, IndiGo will need to induct new aircraft not just to fuel growth, but also to rein in the cost structure," said analysts at SBI Capital Markets in a note to clients.

In fact, IndiGo’s cost per available seat-kilometre (CASK) increased 2.8% year-on-year (y-o-y) to ₹3.85, while the same without fuel expenses still increased 17.2% y-o-y to ₹2.56 because of higher maintenance costs. Some of its older aircraft have higher maintenance and overhaul expenditures with a second shop visit due in the second half.

Besides, the latest engine issue has cropped up during the busy season, which increases the pressure on yields. Even so, pricing power will also be a key factor to watch in the coming quarters. “Commentary on near-term pricing weakness and elevated cost structure (higher provisions for ageing fleet) will cap profits," noted SBI Capital Markets.