The grounding of debt-laden rival Jet Airways and benign fuel prices have benefitted low-cost airlines SpiceJet and IndiGo in the Apr-Jun quarter.
The grounding of debt-laden rival Jet Airways and benign fuel prices have benefitted low-cost airlines SpiceJet and IndiGo in the Apr-Jun quarter. The Jet Airways fiasco led to an increase in fares in the peak holiday season on the back of capacity crunch. With Jet Airways suspending operations, incumbents expanded their operations fast, capturing the void left by Naresh Goyal-founded airline. While IndiGo added 17 aircraft in the quarter, Spicejet added 30, taking its overall fleet count to 106. Analysts with which Financial Express Online spoke are positive on IndiGo and SpiceJet.
Capacity constraints in peak holiday season due to Jet Airways’ suspended operations and grounding of Boeing 737 Max aircraft has led to a rise in airfares. Despite the flat domestic passenger traffic growth over April-May, airlines are expected to see another stellar quarter and report strong margins and profitability owing to high yield environment and soft ATF prices, down 1.2% year-on-year, Prabhudas Lilladher said in a report.
“There are cycles in this sector. It’s not a secular growth kind of story. India has been facing a downturn since the past couple of months. Now everyone will go into international operations which will expand their operational leverage as they are low cost, so their average selling price per seat will be higher than what they charge for the same distance on the domestic side. So their margins will expand further. So if the crude remains stable at $70-75 per barrel, they will be able to expand their operative margins. So, I am positive about the sector,” Sameer Kalra, Founder and Research Head at Target Investing, told Financial Express Online.
“If you look at the whole aviation sector, currently it’s a boon for SpiceJet amid ongoing promoter feud at IndiGo and Jet Airways crisis. FY 20 will be positive for the aviation sector and Spice Jet is our top pick,” a Mumbai-based analyst told Financial Express Online requesting anonymity.
Both IndiGo and SpiceJet are expected to record a rise of 13% and 5% in airfares respectively on a year-on-year basis in the first quarter of FY20, ICICI Securities said. The Apr-Jun quarter is expected to have been a strong quarter for InterGlobe Aviation (IndiGo) and SpiceJet owing to better yields. Average INR value was sequentially flat and average ATF prices declined 1% on a year-on-year basis, it added. The Apr-Jun quarter of FY20 is expected to have been a strong quarter for InterGlobe Aviation (IndiGo) and SpiceJet on the back of better yields. “Average INR value was sequentially flat and average ATF prices declined 1% on a YoY basis. We factor-in the strong fare hikes taken during the quarter in the wake of the capacity crunch resulting from the grounding of Jet/MAX,” it noted in its report.
Promoter tussle may remain an overhang on IndiGo, according to analysts. Analysts are divided on whether to buy or sell IndiGo shares, amid the controversy shadowing the strong fundamentals of the airline. “Among sectors, the aviation space is facing weak discretionary demand and declining airline traffic volumes. The fact that crude oil prices have been weak meant that few performing companies that were of good quality were very well owned. If there are stock-specific issues then the sectoral tailwinds generally do not support the stock,” Neelkanth Mishra said in an interview with CNBC TV18.