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Graphic by Satish Kumar/Mint
Graphic by Satish Kumar/Mint

Will Indian airlines skyrocket in 2020 after a turbulent 2019?

  • Of all the factors, yields and crude oil prices will remain the potential game changers in the new year
  • Investors will watch developments and news flow on Air India divestment closely in the coming year

For the Indian aviation industry, 2019 was a turbulent one. The year saw Jet Airways (India) Ltd shut operations in April. For the rest of the industry, the anticipated increase in fares owing to Jet Airways’ demise fell short of estimates.

Further, specific problems for InterGlobe Aviation Ltd and SpiceJet Ltd led to a miserable September quarter financial performance. InterGlobe runs IndiGo, India’s largest airline by market share.

For IndiGo, maintenance costs had increased sharply, whereas SpiceJet continues to suffer due to unabsorbed costs from the grounding of the Boeing 737 Max aircraft. The upshot: profitability for the half- year ended September isn’t looking very handsome.

What’s more, outlook for the December quarter (Q3 FY20)— which is seasonally the strongest for Indian aviation—isn’t too upbeat, with yields (a measure of pricing) not increasing as desired.

“Yields continue to soften in Q3FY20 despite it being a festive quarter, indicating cooling demand that could weigh on sector profitability," point out SBICAP Securities Ltd’s analysts in a report on 13 December.

Going into the next year, yields would remain a key monitorable for airlines.

According to Ashish Shah, analyst at Centrum Broking Ltd, “When airlines add more capacity next year, they would have more incentive to offer discounts to passengers to fill their upcoming capacity. I would say the best case scenario for 2020 would be that yields/fares increase marginally on a year-on-year basis or remain flat."

Meanwhile, investors will watch developments and news flow on Air India divestment closely in the coming year.

“International expansion by Indian carriers is expected to be an important factor to watch out for in 2020 and will be a combination of new codeshare arrangements, additional point-to-point flights to destinations within 4-5 hours flying time of India and hopefully some wide-body long-haul operations," said Balu Ramachandran, senior vice president at Cleartrip.

How domestic demand shapes up in 2020 would also be interesting to follow. Directorate General of Civil Aviation data shows domestic passenger growth in November rose by 11% year-on-year, helped by healthy passenger load factors. However, in January-November 2019, the growth is just about 4%.

Overall, 2020 promises to be an eventful year for the Indian aviation sector, with many variables to keep a track on. Of all these, yields and crude oil prices remain potential game changers.

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