Passenger growth, lower fuel prices to boost revenues of airlines

Airlines likely to fare well in what is known to be a seasonally weak quarter

Earnings of Indian carriers are likely to be high in the the March quarter, too, as jet fuel prices are down over 23 per cent from last year. Strong passenger growth will help domestic airlines improve their top line and margins in the March-end quarter, analysts say.

With traffic growing well over 20 per cent and load factors elevated at 85 per cent, airlines are likely to fare well in what is known to be a seasonally weak quarter. Aviation turbine fuel price is 23.7 per cent lower at around Rs 37,900 per kilolitre in January-March 2016 on a year-on-year basis and this could boost airline margins.

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According to an analyst poll by Bloomberg, SpiceJet is estimated to show 70 per cent revenue growth on a year-on-year basis while Jet Airways' revenue, excluding other operating income, is expected to rise 15.5 per cent. IndiGo had earlier indicated its revenue would rise six-eight per cent on a year-on-year basis, but analysts expect it to do better than that on strong demand. Bloomberg has not shared a comparative year-on-year figure for IndiGo.

On the flip side, however, a six per cent depreciation in the rupee and pressure on yields due to softening of fares will impact profitability of carriers. While Jet Airways and SpiceJet are expected to post growth in profitability, IndiGo has warned that its profit will be impacted by the rupee depreciation.

Edelweiss Securities expects SpiceJet to report 78 per cent revenue growth in the March quarter of FY16 on a year-on-year basis as the airline has ramped up its network and posted 90 per cent loads in the March quarter. In the corresponding quarter last year, its revenue fell 40 per cent as its fleet shrank and lessors repossessed aircraft. SpiceJet had posted Rs 2.5 crore net profit in the March quarter of FY15 owing to exceptional income and is expected to post a higher profit in the March quarter of FY16.

Jet could see flat to single-digit revenue growth as it has not added new aircraft, while IndiGo expects to post six-eight per cent revenue growth on a year-on-year basis. Jet Airways' performance in the March quarter of FY15 was impacted by a Rs 1,172 crore goodwill impairment resulting in a net standalone loss of Rs 1,728 crore.

IndiGo's profit could fall on a y-o-y basis, as the yield decline for the carrier is expected to be higher than that for the industry. It had benefited from higher occupancy and higher fares in the March quarter of FY16 after SpiceJet cut its capacity.

"In the fourth quarter of FY16, while the year-on-year capacity is expected to grow by about 19 per cent, EBIDTAR margins are expected to be strong at around 35- 37 per cent and at last year's level. However for the fourth quarter revenue is expected to increase 6-8 per cent on a year-on-year basis and net profit will also be impacted due to exchange rate movements," IndiGo had said in a statement in February.

"Jet's domestic passenger traffic growth (up 5.6 per cent year-on-year) may remain lower than industry passenger growth led by a rise in competition. Domestic market share may come down 350 basis points to 21.1 per cent on a year-on-year basis. Further adjusting for lower realisations we expect the company to report revenue growth of 3.4 per cent on a year-on-year basis during the quarter. However, lower ATF prices will aid healthy margin expansion and profitability growth during the quarter," said ICICI Securities in its Q4 results preview note.