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Business News/ Market / Mark-to-market/  What 2019 augurs for Jet Airways, IndiGo and SpiceJet

What 2019 augurs for Jet Airways, IndiGo and SpiceJet

After December quarter results are out of the way, share prices of Jet Airways, SpiceJet and IndiGo will take cues from the trajectory in crude oil prices and how flight tickets are priced in 2019

In 2018, IndiGo shares outperformed those of Jet Airways and SpiceJet. Still, the IndiGo stock trades lower than the year-ago period. Graphic: MintPremium
In 2018, IndiGo shares outperformed those of Jet Airways and SpiceJet. Still, the IndiGo stock trades lower than the year-ago period. Graphic: Mint

Stress levels ran high for Indian aviation companies this year. It all boiled down to three main villains: higher oil prices, a weak rupee, which increases dollar-denominated costs, and pricing pressures. The upshot: InterGlobe Aviation Ltd, which operates the biggest domestic airline IndiGo, reported a pre-tax and exceptional item loss of 957 crore for the half year ended September. Now, simply add Jet Airways (India) Ltd’s and SpiceJet Ltd’s losses and this number swells to a gigantic 3,941 crore. Jet Airways fared the worst, thanks to its high cost structure and heavy debt, resulting in huge finance costs. Note that all three listed airlines were profitable in the year-ago period.

As we enter another year, some respite seems to be on the cards. Brent crude prices have corrected from their October highs and the rupee has appreciated. These two factors will bring relief.

But it is crucial that pricing improves. Here, moderation in capacity growth would prove to be the main facilitator of a rise in fares.

“Our thesis is that undercapitalised airlines will have to moderate capacity growth in order to avoid losses," pointed out ICICI Securities in its strategy report on 18 December.

This should result in overall capacity growth near ~15%, a level where fare hikes can take place in the system, it added. As things stand, though, there is no sign of an improvement in prices, with news reports suggesting that fares for last-minute bookings are falling below those for advance bookings, perhaps for the first time.

Another element to keep a tab on is the movement in crude oil prices. After all, fuel makes up the lion’s share of costs for airlines. The good news is that analysts don’t foresee a substantial increase in crude prices in the near-to-medium term. That is primarily because of slower-than-anticipated demand growth and oil production cuts from the Organization of the Petroleum Exporting Countries (Opec), and allies.

Meanwhile, investors have had little luck. Sure, shares of IndiGo have fared better than those of Jet Airways and SpiceJet. Still, it’s not as if the IndiGo stock is soaring. Jet’s shares have obviously underperformed by a huge margin given its financial troubles. From a near-term perspective, the announcement of the seasonally strong December quarter numbers could have a bearing on sentiments for all the three stocks. After that’s out of the way, stocks will take cues from the trajectory in crude prices and how pricing shapes up.

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Pallavi Pengonda
Pallavi Pengonda is a financial journalist producing cutting edge commentary and analysis on companies, economy and market trends. Over her journalism career spanning more than 14 years, she has covered topics across sectors such as oil & gas, consumer, aviation and new age tech companies. She heads the Mark to Market team and joined Mint in June 2010. She lives in Bengaluru. She is an art enthusiast and likes to paint in her leisure time.
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Updated: 21 Dec 2018, 10:34 AM IST
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