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Air Fares Soar, IndiGo and SpiceJet Rake in the Profits as Jet Airways Continues to Totter

In the March quarter, not only were fares rising, at least two domestic rivals of Jet Airways were making merry as they profited from the goings on in the market during this three-month period.

Sindhu Bhattacharya |

Updated:April 12, 2019, 10:36 AM IST
Air Fares Soar, IndiGo and SpiceJet Rake in the Profits as Jet Airways Continues to Totter
Analysts say SpiceJet will likely post an 85% increase in net profit. (Representative image/Reuters)

Domestic air fares jumped by almost 15% on an average between January and March this year as India’s second largest airline by passengers, Jet Airways, tottered.

Besides, the grounding of Boeing 737-8 MAX aircraft operated by SpiceJet (due to global grounding of these aircraft on safety concerns) and the ongoing flight curtailment by IndiGo also exacerbated capacity crunch at India’s domestic aviation market. And capacity crunch also pushed up fares.

Aviation regulator DGCA has been monitoring air fares and has now asked all airlines to add more aircraft, mount more flights on dense routes so that further fare increase is kept in check. But we must remember that the nearly 15% fare hike was happening during the seasonally weak quarter for domestic aviation (January-March) and there is no way of knowing how much of this will continue in the ongoing peak summer season, when aircraft are usually anyway full and fares inch northwards.

In the March quarter, not only were fares rising, at least two domestic rivals of Jet Airways were making merry as they profited from the goings on in the market during this three-month period.

In fact, market leader IndiGo is now expected to become profitable for the full year 2018-19, mostly because of the benefits that accrued to the airline in a single quarter and thanks to the Jet debacle. IndiGo’s profitability, market share and margins improved manifold in the last quarter.

Analysts at brokerage Edelweiss have said in a note that despite the March quarter being seasonally weak, they expect profits to remain on an upward trajectory at both IndiGo and SpiceJet. For the quarter, these analysts have predicted an over 40% jump in revenues at IndiGo and more than doubled margins compared to the same quarter in 2018.

The analysts are also predicting a more than six-fold jump in profits for IndiGo, which is the anyway the largest airline in India in terms of passengers. For SpiceJet, these analysts have predicted highest domestic growth among all airlines in the March quarter and a revenue growth similar to Indigo’s at around 40% and a profit surge too mirroring that at IndiGo.

And analysts at ICICI Securities, while echoing the sentiments shared by their Edelweiss colleagues, have said they now expect IndiGo to make profits for the year 2018-19 as a whole.

Remember, global aviation consultancy CAPA and other market watchers had expected IndiGo to at best break even or post its weakest ever results in the decade in 2018-19 till September last year. In the September quarter, in fact, IndiGo had posted its highest ever loss. So the change in fortunes for IndiGo has come largely on the back of Jet’s troubles but also because fuel process softened and pricing power returned to India’s domestic aviation market.

CAPA had said last September that “following record profits in 2017-18, India’s most successful airline may report it weakest results in a decade….. For the full year, the airline is likely to break-even or report modest profitability, but even a loss cannot be ruled out at this stage.”

Other analysts also had doubts if the airline will report a healthy set of numbers for FY19. But no more. It seems IndiGo’s fortunes have turned.

For SpiceJet, too, the analysts at ICICI Securities had some encouraging prognosis. They said SpiceJet will likely post an 85% increase in net profit as top line expands by almost a fourth. Margins are expected to rise by almost 125%.

As for Jet, which even till February commanded almost 13% of the domestic market, the Edelweiss analysts have said its domestic passenger growth fell by more than a fourth or 28.2% last fiscal compared to 17% growth seen by SpiceJet and almost 15% increase seen by IndiGo.

Obviously, Jet passengers are choosing to fly the two rivals. Which is why these two airlines grew multiple times more than the industry average of 5.6% in passengers in 2018-19. The Edelweiss analysts are predicting a loss of more than Rs 1,000 crore for just the March quarter.

India’s public sector banks, led by SBI, are making feeble attempts at selling off Jet to potential investors with deep pockets but till now, these attempts have not borne fruit.

As the sale process is ongoing, it is possible that a saviour appears for this beleaguered airline. But one thing is sure: even if Jet manages to find a saviour, it will take a long time for the airline to recover its lost glory. And till then, rivals will continue to make merry as flyers learn to deal with higher average fares.

(Author is a senior journalist)

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| Edited by: Nitya Thirumalai
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