For aviation firms, the good news is that load factors are healthy. However, pricing pressure took a toll on financial performance in the June quarter. SpiceJet Ltd is the only aviation firm that performed better than expected. This is not to say that the airline was immune to pricing woes. But the impact on SpiceJet was less than expected, with its fares declining 3% year-on-year. In comparison, InterGlobe Aviation Ltd, which runs IndiGo, saw an 11% decline in average fare.
The SpiceJet stock had underperformed the benchmark Sensex since IndiGo announced results till 6 September. However, the trend changed on 7 September when SpiceJet’s results pleased investors, leading to a 16% jump in the stock that day.
Jet Airways (India) Ltd had a bumpy landing in the June quarter. Jet said in its conference call that its drop in domestic average fare was close to 10% whereas on the global front the drop in average fare was to the tune of 2.5%.
Factoring in higher-than-expected drop in yields and inching up in cost, Edelweiss Securities Ltd revised down Jet’s FY17/FY18 earnings per share (EPS) 25%/14%, respectively.
Kotak Institutional Equities cut its IndiGo FY17-9 EPS estimates by 11-25% to account for near-term pressure on margins due to declining yield.
On the revenue front, SpiceJet’s performance was the best, with revenue increasing 37% year-on-year, led by a combination of increase in capacity, robust load factor and 64% growth in ancillary revenue.
IndiGo’s revenue rose 9%, driven by a combination of higher volume and a decline in average fares.
Jet’s stand-alone revenue performance was the most disappointing with revenue declining 2% compared with last year.
Jet’s domestic segment revenue performance was more discouraging than its global segment. But the lower crude price environment supported profitability.
SpiceJet’s Ebitdar rose 57% while that of IndiGo declined 3%. Jet’s Ebitdar rose 3.7% year-on-year.
Ebitdar, an important profitability yardstick for aviation companies, is short for earnings before interest, taxes, depreciation, amortization and lease rentals.
After outperforming the benchmark Sensex at the beginning of this fiscal, all the three shares have underperformed in recent months. Passenger growth remains robust. According to the Directorate General of Civil Aviation, passengers carried by domestic airlines in January-August 2016 registered a 23% growth. After a leaner September quarter, investors will watch for the seasonally stronger December quarter performance.