What Helped IndiGo, SpiceJet Defy The Gloomy Earnings Season
IndiGo parent InterGlobe Aviation Ltd. and SpiceJet Ltd.—the two listed airlines in India—clocked their highest ever operational numbers in the first quarter even as most companies on the Nifty 50 index missed estimates halfway through the June quarter earnings season.
Of the 32 Nifty 50 constituents that have announced their June quarter results, 17 missed estimates, the most since at least September 2017, according to data compiled by BloombergQuint.
India’s largest and second-largest airline reported threefold and twofold jump in their Ebitdar (earnings before interest, tax, depreciation and amortisation and rental cost) respectively, mainly aided by higher ticket prices, rise in passenger growth and adoption of new accounting standard Ind AS-116.
Higher ticket prices and passenger growth was on account of shutdown of India’s oldest privately owned full-service carrier—Jet Airways (India) Ltd—in early April. It led to a hike in ticket prices but also helped the larger carriers grab Jet’s market share. This, however, may be short-lived as yields, which measure average fare per passenger per kilometer, have normalised and overall passenger growth is in single digits.
Most of the benefits of Jet shutdown have now normalised, according to Santosh Hiredesai, research analyst at SBICAP Securities. “Yields have currently come down to last year levels, while the overall passenger growth is in single digit.” This, according to Hiredesai, means that there is some slowdown in the sector also. “Generally, lower yields should be complemented by higher passenger growth rate or vice versa to suggest that the sector is growing well.”
IndiGo outperformed its smaller peer SpiceJet in the first quarter of financial year 2019-20. InterGlobe Aviation’s yield jumped the most since listing, while that of SpiceJet increased the least in last three quarters. The latter, however, continues to earn higher revenue compared to IndiGo.
IndiGo and SpiceJet’s cost per seat kilometer were lower in the April-June period due to lower fuel prices. IndiGo’s cost declined the most in last 11 quarters, aided by its fuel-efficient aircraft fleet.
Both the airlines increased their capacity by 30 percent compared to last year to make the most of Jet Airways’ shutdown. However, due to a lower passenger growth, the load factor—which measures capacity utilisation—fell for both the airlines. SpiceJet’s passenger load factor decline by 100 basis points while that of IndiGo declined by 40 basis points compared to last year.