Aviation: Crude price roadblock for sector
Indian aviation firms performed well in the past quarter. But they were expected to do so with oil prices being low. Against that backdrop, the March quarter numbers of airlines do not come as a surprise.
In fact, InterGlobe Aviation Ltd’s (IndiGo’s) results met the guidance they had given in February which had already tapered Street expectations. IndiGo’s earnings before interest, taxes, depreciation, amortization and lease rentals—or Ebitdar—rose 7% from a year ago to Rs.1,505 crore, translating into an Ebitdar margin of 36.8% that was steady compared with a year ago and two percentage points lower sequentially.
Meanwhile, SpiceJet Ltd had reported many adjustments in maintenance costs, re-delivery expenses and other income. Adjusting for all of that, Ebitda and Ebitdar at Rs.220 crore and Rs.460 crore, respectively, signify a strong operating performance, points out Anand Rathi Share and Stock Brokers Ltd.
Jet Airways (India) Ltd’s standalone Ebitdar jumped to Rs.1,361 crore last quarter from Rs.1,227 crore and Rs.196 crore in the December and March 2015 quarters, respectively. As expected, all three firms reaped the benefits of the lower crude price environment. In fact, fuel costs as a percentage of revenue dropped to as low as 25%, 20.6% and 22.7%, respectively, for IndiGo, Jet Airways and SpiceJet. What’s more, lower fuel costs also enabled Jet Airways and SpiceJet to report a profit for the year as a whole, too. IndiGo, on the other hand, saw a 53% growth in its net profit for fiscal 2016.
Going ahead, the fact that traffic data is healthy is encouraging. According to the Directorate General of Civil Aviation, passengers carried by domestic airlines in January-April 2016 rose 23%, compared with last year. “We expect India’s passenger volume growth to remain strong in FY17-18E (expect 20% CAGR, or compounded annual growth rate) as ticket prices are unlikely to increase sharply (in line with our outlook on fuel costs) and economic growth momentum is likely to improve,” says Kotak Institutional Equities.
But crude prices are showing signs of strength. Perhaps that is why these stocks have underperformed the benchmark Sensex in the first five months of 2016 (see chart). The outlook on prices from a medium-term perspective, though, continues to be soft, and that’s comforting. Having said that, to a great extent, whether FY17 will be better than the previous year will depend on how crude prices fare.