India’s airline companies will benefit from higher airfares and reduced competition in the domestic sector in the June quarter, but increased operating expenditure and rupee depreciation would affect performance, according to industry analysts and experts.
Compared to the first quarter of 2011-12, domestic fares were 20-25 per cent higher in the first quarter of the current financial year. But, operating costs also rose in the quarter, as prices of aviation turbine fuel increased 8-10 per cent and the rupee depreciated by over 25 per cent, they said.
Of the listed carriers, SpiceJet Ltd is projected to reduce its losses sharply even as analysts are divided on the performance of Jet Airways (India) Ltd. The Vijay Mallya-promoted Kingfisher Airlines Ltd, which has cancelled several flights due to cash-crunch, will see its losses widen, according to brokerages.
“Airlines should be able to capitalise on the increased load factors. Both Spicejet and Jet should drastically reduce their losses. In fact, Spicejet can even make profits and Jet can just be operationally profitable as the interest cost for them is quite high,” said an aviation analyst, who did not want to be named.
According to the Directorate General of Civil Aviation (DGCA), in the first quarter, Jet Airways and Spicejet were flying with load factors of as high as 80 per cent on an average.
Flight School
Corroborating this market sentiment, Rashesh Shah, equity research analyst at ICICI Securities Ltd, said: “The aviation sector is likely to see improvement in margins, though it may still remain in negative. Jet would be able to squeeze its losses, compared to the last quarter of 2011-12, but the losses may still hover above the first quarter of 2011-12, largely on account of high interest cost and foreign currency loans because of rupee depreciation.”
Aviation Colleges
However, some experts are upbeat about the aviation sector’s first quarter performance.
Kapil Kaul, chief executive officer of of South Asia Capa (Centre for Asia Pacific Aviation), said: “The airlines should see improved finances on the back of better pricing of tickets due to rationalisation of capacity. I foresee IndiGo and GoAir to show profitability and Jet airways and Spicejet should be closer to profitability.”
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