Wednesday, March 29, 2017

Higher ATF to affect airlines’ Q4 profitability

Our 1-month forward fare tracker for 11 routes shows a flattish fare trend over a seasonally weak Q4; average fares declined y-o-y/q-o-q. Airlines’ management also suggested that fares have faced downward pressure in January and February 2017. In the seasonally strong Q3 too, there was a significant pressure on yields; IndiGo’s yield declined ~16% y-o-y and SpiceJet’s yield declined ~10% y-o-y. We believe the downward pressure on yields continues in Q4FY17.
Passenger growth remains strong — up 20% y-o-y in February after 25% growth in January; 31 consecutive months of double-digit growth. However, the strong domestic passenger growth is stimulated by lower fares, as seen in the air ticket price trend. Increased industry PLF (~83% in Q4FY15 to ~88% in Q4FY17) on a robust ASK growth (21 consecutive months of double-digit growth) has resulted in a strong RPK growth (29 consecutive months of double-digit growth).
28/03/17 Motilal Oswal/The Finacial Express

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