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3 reasons why IndiGo, SpiceJet, Jet Airways may report profits in Q1

LiveMint logoLiveMint 26-07-2017 Tarun Shukla

New Delhi: India’s three listed airlines are expected to report profits for the quarter ending June improving on their last year’s performance, according to analysts.

InterGlobe Aviation Pvt. Ltd-run IndiGo, SpiceJet Ltd and Jet Airways Ltd are expected to announce their quarterly numbers over the next one month.

“Because of higher passenger occupancy and because airlines were able to command better airfares there is likely to be some improvement,” said an airline official, who did not wish to be named

While IndiGo will announce its results on 31 July, SpiceJet and Jet Airways are yet to announce a date.

Three factors have helped the airlines this quarter.

First, airlines have been able to get better fares from passengers, on average.

Second, there has been a reduced rupee impact (about Rs64 to a dollar this quarter versus Rs67 last year). Many of the airlines’ costs are dollar denominated.

Third, passenger growth in the quarter has remained in double digits (15-20%), which reflected in the airlines’ shares that have soared.

SpiceJet’s shares on the Bombay Stock Exchange were up about 30% in April-June, while IndiGo shares were up 11% and Jet’s 6%.

Higher fuel prices (Rs49-51 a litre in the June quarter versus Rs42-46 a litre a year ago), which make up for about one-third the cost of an Indian airline, will drag down the tailwinds.

Brokerage firm Edelweiss Securities Ltd, in a 5 July report, estimated IndiGo to post a profit of Rs682.6 crore in the June quarter on the back of 23% growth in revenue despite lower yields compared with Rs626.8 crore year-on-year (y-o-y).

It expected Jet Airways to post a profit of Rs186.1 crore on a muted topline growth (of 13%) compared to peers as against Rs103.1 crore y-o-y.

SpiceJet is expected to post a Rs181.7 crore profit on the back of growth in passenger volumes that continue to drive revenue growth, while yield remains under pressure compared with Rs149 crore y-o-y.

Aviation consulting firm CAPA estimates IndiGo to post a profit of Rs650-700 crore, Spicejet to post Rs175-225 crore and Jet to post Rs 200-250 crore.

“Both passenger load factor and yields have increased in this quarter—which continues to surprise. But we are not sure as yet if this is a directional shift,” CAPA said in an email.

SBICAP Securities Ltd, in its 11 July report, also estimated IndiGo to post a profit of Rs785.1 crore.

“Due to lower-than-expected induction of aircrafts, deployed capacity growth has been slightly lower than the guidance; however, PLFs have been very healthy. Pax yield has been steady in a seasonally strong quarter amidst cost tailwinds. Hence, this should be a robust quarter,” it said.

It also expects SpiceJet to post Rs207.6 crore profit.

“Capacity induction has been very strong, and load factors have topped the 90% mark. Improved yields along with benign costs (ATF and that linked to USD) should help the company record very strong earnings,” it said.

ICICI Securities Ltd, in its 12 July report, said the first quarter is expected to be a strong quarter for Indian airlines.

Sequentially, jet fuel prices were down by 5%, the rupee was stronger by 4% and Q1 is a seasonally strong quarter.

“These tailwinds should create a solid base for Q1 earnings. Our ground checks indicate improvement in fares, especially during April and May. A slower aggregate domestic traffic growth of ~15% compared to the erstwhile run rate of ~20% also creates an enabling environment of improving yields,” the report said.

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