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Analysts offer mixed views on aviation sector

Disha Kanwar  |  New Delhi 

India’s will benefit from higher airfares and reduced competition in the domestic sector in the June quarter, but increased operating expenditure and rupee depreciation would affect performance, according to industry analysts and experts.

Compared to the first quarter of 2011-12, domestic fares were 20-25 per cent higher in the first quarter of the current financial year. But, operating costs also rose in the quarter, as prices of aviation turbine fuel increased 8-10 per cent and the rupee depreciated by over 25 per cent, they said.

Of the listed carriers, Ltd is projected to reduce its losses sharply even as analysts are divided on the performance of (India) Ltd. The Vijay Mallya-promoted Ltd, which has cancelled several flights due to cash-crunch, will see its losses widen, according to brokerages.

“Airlines should be able to capitalise on the increased load factors. Both and Jet should drastically reduce their losses. In fact, can even make profits and Jet can just be operationally profitable as the interest cost for them is quite high,” said an aviation analyst, who did not want to be named.

According to the Directorate General of Civil Aviation (DGCA), in the first quarter, and were flying with load factors of as high as 80 per cent on an average.

Corroborating this market sentiment, Rashesh Shah, equity research analyst at ICICI Securities Ltd, said: “The aviation sector is likely to see improvement in margins, though it may still remain in negative. Jet would be able to squeeze its losses, compared to the last quarter of 2011-12, but the losses may still hover above the first quarter of 2011-12, largely on account of high interest cost and foreign currency loans because of rupee depreciation.”

However, some experts are upbeat about the aviation sector’s first quarter performance.

Kapil Kaul, chief executive officer of of South Asia Capa (Centre for Asia Pacific Aviation), said: “The airlines should see improved finances on the back of better pricing of tickets due to rationalisation of capacity. I foresee IndiGo and GoAir to show profitability and and should be closer to profitability.”

The very reason Jet had robust international operations during May and June would have a significant impact, he added.

Name  Net profit
Q1 FY 12

Brokerage house

Net sales
Net profit
Jet Airways -123.1 Kotak 5,047 302 -186
Edelweiss 4,923 362 -45
ICICI 4,845 196 -200
Bank of America 4,942 644 -176
SpiceJet -71.9 Kotak 1,334 19 -7
ICICI 1,300 -17 -48
Bank of America 1,320 162 -46
-264.0 ICICI Direct 438 -93 -475
Data compiled by BS Research Bureau; IndiGo, 2nd largest by market share, is not listed

Though India is one of the fastest growing markets in terms of passenger volume, domestic carriers made huge losses in 2011-12. Losses of the country’s three listed carriers stood at Rs 4,169.88 crore last fiscal. Jet made a loss of Rs 1,236 crore on a revenue of Rs 14,816 crore, while and Kingfisher incurred losses of Rs 606 crore and Rs 2,328 crore on revenues of Rs 3,998 crore and Rs 5,493 crore, respectively.

First Published: Fri, July 27 2012. 00:35 IST