The DGCA air traffic data for the month of April-May 2016 indicates growth in both the months of more than 20% native passengers. IndiGo’s data shows 23% ASK (Available Seat Kilometres) build Y-Y in Q1FY17 by proper maintenance of PLFs (Passenger Load Factor) and OTP (On Time Performance). On their part, Spicejet and Jet Airways have figured out how to improve their capacities. As the measures to expand capacity is reduced, capacity upgrade will be driven by lessor arrangements that will inspect the cost structures for Spicejet/Jet.
Domestic traveler growth stays strong at 21.5% for May 2016
Our domestic supply-demand model indicates a yearly growth rate of just 14% between FY17 and 20E on the basis of current order book but airplane supply based on current order book will lag demand.
IndiGo has expanded its ASK by 23% Y-Y in April-May 2016
IndiGo shows an expansion of 23% ASK in Q1FY17 and 34% in FY17. The ASK increment between March and May 2016 is 8%, which is completely determined by Neos (airline). The ASK increment for IndiGo in domestic routes is 25% whereas it is 6.5% in the international routes. Eventually, the international ASK share for IndiGo has reduced from 11% to 9% between Mar-Apr 2015 and Mar-Apr 2016. On Time Performance (OTP) of IndiGo remains the best among big airlines. PLF expanded to 87.2% in May 2016. The market share of IndiGo is 39% as per the May data, while based on ASK it is comparatively higher in the domestic sector i.e., 41%.
Spicejet’s higher utilization led to capacity increment
Y-Y differentiation is not relevant for Spicejet as it had a lower base in Q1FY16. The ASK growth between Mar-May 2016 was 4%. We believe that this growth will be carried by higher utilization with increase in international trips where its ASK share has expanded from 21% to 25% on a Y-Y base. In May 2016, OTP dropped to 79%. However, PLFs remains high at 93.5%.
Jet ASKs has moderated because of the already higher utilization
Y-Y increment in Jet ASK has been just 4%, which again would depend on higher resource utilisation. The international ASK share is 60%.
Policy initiatives have stayed steady for the part
The mandatory rule of 100% FDI (Foreign Direct Investment) under automatic route in Greenfield airport projects have been maintained while the limits of the same has been expanded from 74% to 100% for brownfield airports. This will have a minimal incremental effect since most of the upcoming big projects that lie in Navi Mumbai, Goa and Pune will be Greenfield airports. Scheduled Air Transport Service/Domestic Scheduled Passenger Airline and Regional Air Transport Service has been expanded from 49% to 100%, with FDI allowed up to 49% under automatic route and FDI more than 49% by Government approval. Whereas, 100% FDI is permitted under automatic route for NRIs (Non-Resident Indians). However, foreign airlines are permitted to invest in capital of Indian companies that are operating Scheduled and Non-Scheduled Air-Transport Services up to 49% only. (applicable for Air Asia).