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Aviation sector earnings set to fly high in Q1 FY18: ICICI Securities

LiveMint logoLiveMint 24-05-2017 PTI

Mumbai: Helped by a strong rupee, lower crude prices and better fares, the domestic aviation sector is likely to see robust earnings for the April-June quarter of the current fiscal, said a report. A strong earnings quarter was expected for the sector for three months ended December 2016, but the demonetisation measure had adversely effected the earnings during the period, said the report by stock brokerage ICICI Securities.

“Stronger rupee, lower crude and better fares is a triumvirate of tailwinds which has eluded the sector for long but is likely to play out in the first quarter of 2017-18,” ICICI Securities said. “In many ways, first quarter could be a strong earnings quarter for the sector,” it added. On GST (goods and services tax) rates set for air travel, the brokerage said it is “majorly positive as the sector continues to remain on the windward side of government policies”.

“This is a welcome move as the higher taxes on aviation turbine fuel (ATF) will continue (taxes contribute about 30% of aviation turbine fuel prices) with fuel remaining outside the ambit of GST. “The common grouping of air travel with transport of goods and passenger by rail will offer further reference point for future fiscal policy for the aviation sector, which is a structural development,” it added.

Service tax on economy class air travel has been lowered from 6% to 5% under the GST regime, which is likely to be rolled out on 1 July. “This is incrementally positive for low cost carriers like IndiGo, SpiceJet, Go Air, and Air Asia,” the report said. The report noted that increase in service tax from 9% to 12% for premium class air travel under GST is “incrementally negative for business class segment of full service carriers like Jet Airways, Air India and Vistara”.

“However, even the full service carriers will benefit from their economy class segment (for example, The Boeing 737 used by Jet Airways offer 168 seats, of which only 12 are in the premium category),” the report added.

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