Airlines to gain from lower fuel price, passenger growth

Analysts expect both Jet Airways and SpiceJet to post healthy quarterly results at the operating level

Growth in passenger traffic and the drop in fuel prices during the September quarter are expected to drive the profitability of airlines.

Jet Airways and SpiceJet had posted losses of Rs 43 crore (consolidated) and Rs 310 crore, respectively, in the same quarter last year. Analysts are expecting both to report healthy performance now at the operating level.

The second quarter is traditionally weak but passenger volume this year were higher. Average occupancy in the second quarter last year was 74.7 per cent and it rose to 79.6 per cent in July-August this year. Brokerages estimate Jet will report 6-10 per cent growth in standalone revenue, year on year but SpiceJet will post a decline in revenue because of a reduction in capacity and network. Revenue earned per passenger for both will be also be lower because of a 15 per cent reduction in fares.

“Total passenger traffic may report growth of 29.1 per cent. Lower capacity in the industry will help Jet  improve market share to 22.8 per cent. We expect the company to report revenue growth of 10.3 per cent,” ICICI Securities said in a results preview report.

The brokerage expects Jet to report a net profit of Rs 80 crore. However, estimates vary and other brokerages reckon the airline will post a higher profit (Rs 133 crore ) or a net loss of Rs 150 crore due to higher non-fuel expenses and impact of a weaker rupee.

SpiceJet, too, is expected to gain from lower fuel prices and passenger growth. For the last five months SpiceJet has been reporting the highest load factors in the sector, registering 92 per cent occupancy in August. Higher occupancy has enabled the airline to keep its unit revenue intact, despite a fleet reduction in the first quarter.

Jet fuel prices are about 33 per cent lower than the same period a year ago. This helped offset the impact of a weaker rupee. From the second quarter of 2014-15, the rupee has depreciated from 61 to 66 against the dollar

About 25-30 per cent of an airline’s costs, excluding fuel, are dollar-denominated. Jet’s dollar-denominated expenses are higher because of foreign loans and higher expenses on distribution and maintenance.

In the first quarter, fuel accounted for 27 per cent of Jet’s operating expenses, down from 36 per cent a year earlier. SpiceJet’s fuel costs accounted for 34 per cent of expenses, down from 43 per cent in the first quarter of last year.