Economy

‘Jet’s grounding to have positive impact on rivals in FY20’

Our Bureau New Delhi | Updated on June 07, 2019 Published on June 07, 2019

Jet Airways’s grounding is seen easing the shortage of pilots in the country (file photo)   -  PAUL NORONHA

CAPA report sees domestic carriers posting better profits and gaining from more slots

The temporary grounding of Jet Airways has positively transformed market dynamics for the other Indian carriers, which could report a combined net profit of $250-700 million in FY20, the Centre for Asia Pacific Aviation (CAPA) said in a report titled ‘India Insight Q1 FY 20’, on Thursday. The best case scenario would be a profit of $500-700 million and the worst case would be $250-400 million, it added.

The exit of Jet has eased slot constraints at various airports, particularly during peak hours, and this is another positive transformation in the market, said the report. “Jet’s exit has released plentiful slots, particularly at India’s most congested airport, Mumbai, which was its base. Airport operators will need to adjust to the new growth and market realities,” the report added.

Another positive outcome of Jet’s exit is that the pilot shortage in the market has eased, with 2,100 employees of the airline now available for jobs elsewhere. Further, the issue of over-capacity has also been addressed, as more than 35 million seats were taken out of the system, resulting in a more balanced demand-supply dynamics, which should improve yields significantly, the report pointed out.

Speaking to BusinessLine, Kapil Kaul, CEO and Director, CAPA South Asia, said that in both the best and worst case scenarios, the industry will report a profit at a consolidated level. The best case scenario involves oil prices remaining stable, the rupee trading at 70-72 to the dollar and airlines maintaining pricing discipline. The worst case scenario involves airlines breaking the current pricing discipline.

AI may break even

The report is of the view that Air India could break even at the net level for the first time in over a decade. “The favourable market conditions represent a unique opportunity for structural reset of the national carrier, which Air India must take advantage of,” it said. Vistara may be the greatest beneficiary of the Jet shutdown, it added.

According to the report, low-cost airlines IndiGo, SpiceJet and GoAir are likely to report record profitability in FY20. They are likely to report a combined profit of $500-700 million, of which IndiGo alone could account for $400-500 million, it added.

The report further said most of the domestic capacity lost as a result of Jet’s closure should be restored by the end of the second quarter, with growth resuming subsequently. Domestic traffic growth, however, will be muted with full-year growth expected to be below 5 per cent. “The high double-digit growth rate observed during the last five years is unlikely to return for the foreseeable future,” it added.

SpiceJet’s ascent

SpiceJet is emerging as the Number 2 player in the market and, within 12 months, its domestic share could approach 25 per cent, the report said.

However, according to the report, recovery in the international sector could take one or two years with traffic likely to be flat. The report also predicts that consolidation in the Indian market will continue. “Jet Airways’ exit is the first step with further developments likely over the next 12-24 months,” it said.

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Published on June 07, 2019
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