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Business News/ Market / Mark-to-market/  Aviation Q2FY18: expect a smooth landing
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Aviation Q2FY18: expect a smooth landing

Relatively softer crude prices and better outlook on fares have helped sentiment in the aviation sector to an extent

All the three aviation stocks have outperformed the benchmark Sensex in 2017 so far, with SpiceJet shares leading by a substantial margin. Graphic by Subrata Jana/MintPremium
All the three aviation stocks have outperformed the benchmark Sensex in 2017 so far, with SpiceJet shares leading by a substantial margin. Graphic by Subrata Jana/Mint

The September quarter is typically a lean one for the Indian aviation sector. However, this time around, the financial performance of airlines is expected to get some support from better fares and a strong rupee. What’s more, there has been some relief on the fuel cost front.

Average aviation turbine fuel (ATF) prices in Delhi published by Indian Oil Corp. Ltd show a 2% year-on-year (y-o-y) increase in the September quarter, which is manageable. Prices have declined 5%,compared with the June quarter.

According to Santosh Hiredesai, an analyst at SBICAP Securities Ltd, capacity addition slowed down for some of the large firms, which should have helped sustain some pricing power already seen during the June quarter.

“Expect some uptick (2-4%) in yields y-o-y even as, sequentially, yields will be lower, owing to the seasonally weak quarter (non-holiday/non-festive season)," says Hiredesai.

ICICI Securities Ltd factors in a y-o-y increase of ~1.5% in average fares for IndiGo during Q2FY18, compared with a 6%/16%/14%/11% y-o-y decline in Q4/Q3/Q2/Q1FY17, respectively, and a 0.9% increase in fares y-o-y in Q1FY18.

“Sequentially, relatively lower growth in capacity, lower domestic traffic growth and higher international share of available seat kilometre (ASK) should aid the aggregate yields of IndiGo," Ansuman Deb, an analyst at ICICI Securities, wrote in the September quarter earnings preview.

SpiceJet Ltd is expected to fare relatively better on fares.

ICICI Securities is factoring in a 6% y-o-y increase in fares for SpiceJet for the September quarter.

For Jet Airways (India) Ltd, the performance of its international segment, which has been a pain point for the past few quarters, is a key measure to watch out for in the September quarter.

Investors would also do well to watch the company’s leverage position, given that debt is a one of the chief concerns for the stock.

All the three aviation stocks have outperformed the benchmark Sensex in 2017 so far, with SpiceJet shares leading by a substantial margin.

Relatively softer crude prices and better outlook on fares have helped sentiment to an extent.

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ABOUT THE AUTHOR
Pallavi Pengonda
Pallavi is a deputy editor at Mint and heads the Mark to Market team. This column covers wide-ranging topics related to the stock markets, offering an in-depth analysis of financial reports of companies. She writes and edits across verticals, covering the breadth of the Indian stock market. Pallavi has done her master of management studies, specializing in finance.
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Published: 23 Oct 2017, 07:47 AM IST
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