Flying high on favourable economics

Anand Kalyanaraman | Updated on January 20, 2018


The 2015-16 fiscal has been one of the best for Indian aviation. The rout of crude oil slashed the cost of aviation turbine fuel (ATF), the largest expense for domestic airlines. ATF prices have halved since July 2014 and fallen about a quarter over the past 12 months. This enabled airlines to cut fares, which in turn boosted air traffic. At about 811 lakh, the number of passengers carried by domestic airlines during January-December 2015 was 20 per cent higher than a year ago. Low costs and improving traffic numbers reflected in the financial performance of all the three listed airlines — Jet Airways, SpiceJet and InterGlobe Aviation (IndiGo), which made its debut on the bourses in November 2015. Jet Airways and SpiceJet have been profitable in the three quarters so far in 2015-16 and are set to end the fiscal on a high note, after many years of heavy losses. IndiGo bolstered its record of being consistently profitable.

Notable was the phoenix-like rise of SpiceJet, which had a near-death experience in late 2014 after having grounded a chunk of its fleet due to a cash crunch. The change in management in early 2015, combined with favourable flying economics, revived the fortunes of the airline. From a loss of over ₹700 crore in the nine months ended December 2014, the airline posted a profit of ₹334 crore in the April–December 2015 period. This is despite its revenue declining about 19 per cent due to a smaller fleet and lower ticket prices. Jet Airways too swung to a profit of ₹776 crore in the same period from a loss of about ₹85 crore in the corresponding period a year ago. IndiGo nearly doubled its profit year-on-year to more than ₹1,400 crore for the nine months ended December 2015.

Not surprisingly, airline stocks soared on the bourses last year, despite the broader market being weak. The SpiceJet stock more than quadrupled from less than ₹20 to ₹90, before giving up quite some gains earlier this month. Still, it is at more than triple the price from a year ago. Jet Airways too soared more than 65 per cent before paring gains; it is now up about 31 per cent from the previous year. IndiGo, after a successful IPO, rose more than 50 per cent in less than three months. But delay in aircraft delivery and lower-than-expected September quarter performance — revealed along with the December quarter results — saw the stock crash over the past month. It fell below its IPO price (₹765) before recouping some losses. The stock is now up about 11 per cent from its issue price.

Published on February 18, 2016

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