While SpiceJet’s market share declined by 50 basis points to 13.1% in April, analysts expect the low-cost airline to start seeing market share gains soon. (Ramesh Pathania/Mint)
While SpiceJet’s market share declined by 50 basis points to 13.1% in April, analysts expect the low-cost airline to start seeing market share gains soon. (Ramesh Pathania/Mint)

Ahead of March quarter results, IndiGo and SpiceJet are flying high

  • Brent crude prices had fallen by 4.5% on Thursday, that has brought cheer for IndiGo and SpiceJet
  • IndiGo reported a sharp increase of 300 basis points in its market share to 49.9% in April

Shares of SpiceJet Ltd and InterGlobe Aviation Ltd soared on Friday, gaining about 10% and 5%, respectively. Alongside, shares of Jet Airways (India) Ltd fell by about 5% on reports that the Hinduja Group has failed to strike a deal with Etihad Airways to buy the Indian airline.

Jet Airways’ loss is its competitors’ gain, and this theme has been playing out every now and then on the Street.

But there were other factors as well that improved investor sentiment for aviation stocks. Brent crude prices had declined by 4.5% on Thursday.

What’s more, InterGlobe Aviation, which runs IndiGo, reported a sharp increase in market share in April. The airline’s share rose 300 basis points month-on-month to 49.9%. A basis point is one-hundredth of a percentage point.

While SpiceJet’s market share declined by 50 basis points to 13.1% in April, analysts expect the low-cost airline to start seeing market share gains soon.

Shares of SpiceJet Ltd and InterGlobe Aviation Ltd soared on Friday, gaining about 10% and 5%, respectively. Alongside, shares of Jet Airways (India) Ltd fell by about 5% on reports that the Hinduja Group has failed to strike a deal with Etihad Airways to buy the Indian airline.

Jet Airways’ loss is its competitors’ gain, and this theme has been playing out every now and then on the Street.

But there were other factors as well that improved investor sentiment for aviation stocks. Brent crude prices had declined by 4.5% on Thursday.

What’s more, InterGlobe Aviation, which runs IndiGo, reported a sharp increase in market share in April. The airline’s share rose 300 basis points month-on-month to 49.9%. A basis point is one-hundredth of a percentage point.

While SpiceJet’s market share declined by 50 basis points to 13.1% in April, analysts expect the low-cost airline to start seeing market share gains soon.

SpiceJet has been adding new flights at a rapid pace, taking advantage of the gap left by Jet Airways. The reason it hasn’t been able to take advantage of Jet Airways’ shutdown is because of the ban on the Boeing 737 Max 8 aircraft, which happened around mid-March. The airline had 12 operational 737 Max 8 aircraft. But it has since inducted the aircraft which were earlier operated by Jet Airways. The results are expected to be seen soon. The fact that SpiceJet shares have risen 59% year-till-date, more than the 39% gain in IndiGo shares, shows that investors aren’t too perturbed about its recent market share losses.

Also, IndiGo and SpiceJet will announce their March quarter results early next week and, perhaps, offer the first meaningful clues on the financial gains from Jet Airways’ troubles.

“It is possible that March quarter results of both IndiGo and SpiceJet would be stellar," said an analyst commenting on Friday’s share performance, requesting anonymity.

Amid Jet Airways’ troubles and grounding of fleet of other airlines, industry yields have increased and this is expected to boost the March quarter numbers of the sector. But analysts from IndiaNivesh Securities Ltd said in a note to clients that yields have begun to correct month-on-month with supply increasing. Accordingly, commentary on pricing will be key.

To be sure, crude oil prices recovered a bit on Friday and are not particularly low at $68 a barrel. In that backdrop, when IndiGo and SpiceJet announce their numbers next week, commentary on pricing will be critical.

Meanwhile, domestic passenger traffic growth in April declined by 4.5% year-on-year, the weakest monthly performance in the last few years. Investors should be mindful of this measure as well, while pricing airline stocks at higher multiples.

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