Here’s What Hit Aviation Companies’ Earnings In March Quarter
Lower ticket prices and higher fuel cost impact Q4 earnings.
Indian aviation industry’s earnings remained under pressure in the quarter-ended March as growing competition put pressure on ticket prices amid rising cost of fuel. The subdued earnings were despite passenger growth hitting a record high.
Passenger growth during January-March was close to 26 percent – the highest in at last four years, while jet fuel prices rose 12 percent compared to last year.
Ticket Prices
Passenger yields, which measure the average fare per passenger per kilometre, declined for the top two operators–InterGlobe Aviation Ltd.-owned IndiGo and Jet Airways (India) Ltd.–because of competition.
For SpiceJet Ltd., it increased by close to 6 percent compared to last year, according to data compiled by BloombergQuint. This could be because the airline has deployed around 5-8 percent of its capacity to the regional connectivity scheme UDAN while others haven’t.
Fuel Cost
Jet fuel, or aviation turbine fuel, which accounts for more than a third of an airline’s operating costs, was higher by 12 percent, increased costs for all carriers in India. The absolute fuel cost for all airlines increased 30 percent, but the fuel cost per available seat kilometre, or CASK, told a different story. Fuel CASK, which not only accounts for passenger growth but also for capacity growth, increased the least for IndiGo. The other two – SpiceJet and Jet Airways – saw a rise of 17 percent and 30 percent, respectively.
However, Jet Airways was the only airline which could reduce CASK excluding fuel costs as a result of cost saving initiatives.
Core profit, that is, revenue minus CASK, fell for all three listed airlines, and remained negative for Jet Airways.
Passenger growth is expected to increase further going forward but rising fuel cost and falling yields will act as headwinds.
Jet fuel prices increased by 7 percent month-on-month in June for the eleventh straight month. It will now cost Rs 71,245 per kilolitre on an average across India. According to a Morgan Stanley report, yields are likely to be weak for the first half of financial year 2018-19.