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The September quarter scorecard of airlines presents a stark contrast. IndiGo Airlines and SpiceJet, the two listed low-cost carriers, put up a strong show, building upon the good start in the June quarter after a forgettable 2016-17. But Jet Airways, the only listed full-service carrier, found itself on the back-foot again.
In a quarter considered seasonally weak, IndiGo’s profit nearly quadrupled y-o-y to ₹552 crore, while that of SpiceJet grew about 80 per cent to ₹105 crore. Jet Airways, on the other hand, saw its bottom-line shrink 91 per cent to ₹50 crore.
This was a continuation of sorts of the June 2017 quarter and the 2016-17 financial year. While IndiGo’s and SpiceJet’s profit growth in the June quarter reflected operational performance improvements, Jet Airways’ profit doubling was thanks to non-recurring ‘other income’.
In 2016-17 too, Jet Airways’ profit crash was much worse than the dips at IndiGo and SpiceJet.
“Jet’s September quarter profit after tax came in substantially below our estimate due to weaker-than-expected yield in the international segment,” says Joseph George of IIFL Institutional Equities, in a report.
International blues
Jet’s international operations account for about 60 per cent of its revenue and profit. This business has been under pressure due to challenges in West Asia, the airline’s key market. In the quarter, Jet’s operating profit from international operations declined 14 per cent y-o- y, off-setting the 13 profit growth in domestic operations. Weakness in international operations kept Jet’s yield (revenue per passenger kilometre) flat. Contrast this with yield improvement of 9 per cent for IndiGo and 7 per cent for SpiceJet. The improvement would be a relief for the low-cost airlines, since big capacity additions were expected to put pressure on fares. Stagnant fares would have squeezed the carriers, with rising fuel costs. IndiGo and SpiceJet were able to peg up their yields, thanks to traffic (revenue passenger kilometres) growing faster than capacity additions (available seat kilometres). This helped improved load factors by almost 2 percentage points. In the case of Jet Airways though, traffic growth was marginally lower than capacity growth, leading to a dip in load factor.
IndiGo’s revenue grew 27 per cent while SpiceJet’s revenue rose 30 per cent in the September quarter. Jet Airways though posted a subdued 3 per cent increase in revenue.
Extra benefits and cuts
Besides operational improvement and better revenue management, IndiGo’s bottom-line in the September quarter benefited from credits received from Pratt &Whitney and Airbus, for aircraft groundings and delivery delays. Even excluding this, IndiGo put up a good show with its EBITDAR (operating profit before rent) growing nearly 62 per cent y-o-y.
Meanwhile, Jet Airways did not get any benefit from sale and leaseback of aircraft in the recent September quarter, unlike the year-ago period when it pocketed ₹190 crore on this front. As a result, the airline’s ‘other income’ dipped nearly 60 per cent y-o- y in the recent September quarter. But even excluding this one-off, the airline’s profit in the quarter would have dipped about 86 per cent.
Better yield outlook
Despite high fuel cost, IndiGo and SpiceJet should post a good show in the ongoing December quarter too. One, passenger traffic growth remains healthy in the high-teens and the quarter is a seasonally strong one. IndiGo, the largest domestic carrier, has indicated a modest capacity increase of 14 per cent in the quarter, not much different from the 13 per cent in the September quarter. This is likely due to continuing troubles with the A320 aircraft deliveries.
This should aid yields. Besides, much of the pain in the sector last year was in the December 2016 quarter due to the impact of demonetisation; the low base effect should help in the ongoing quarter.
The low base effect should aid airlines in the March 2018 quarter too. But expected higher capacity additions in the last quarter could be the fly in the ointment. IndiGo has indicated capacity increase of 19 per cent for the full year fiscal 2018; this suggests a sharp jump in the airline’s capacity in the March quarter. That could mean higher competition and pressure on fares.
According to Kinjal Shah, Assistant Vice President & Co-Head - Corporate Sector Ratings, ICRA, “Though the near term capacity addition estimates remain supportive for yield improvement, the expected sizeable capacity addition over the next three years is likely to impact the ability of the airlines to withhold the gains.”
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