Thursday, August 24, 2017

IndiGo and SpiceJet breadwinners even as aviation sector battles engine issues, seasonal glitches

India’s domestic aviation industry has been flying high and clocking double-digit passenger growth for long and the month of July 2017 was no exception. While industry grew by 12.5 percent, it was lower compared to the last two months. Apart from seasonal weakness, performance was marred by engine issues faced by Indigo and GoAir. This also had an impact on the overall domestic load factor that fell 270bps (MoM) to 83.2 percent in July 2017.

Despite IndiGo's engine issues, we continue to like the business on the back of its leadership in the domestic market, cost efficiencies and plan to foray into a long-haul low-cost airline. In addition, we like SpiceJet on the back of its turnaround, market share expansion and comfortable valuations.
IndiGo continues to lead Indian skies. However, its market share fell by 130bps (MoM) in July 2017 on the back of engine problems that it has been facing on its A320neo aircraft. As per sources, the company has grounded 13 aircraft due to engine issues. This resulted in a rather unimpressive performance on all parameters in the month of July 2017.

The engine problem led to a single-digit growth in passenger traffic as compared to the double-digit growth it clocked in the last two months. Its load factor also went below 85 percent on the back of a significant fall in the RPK (revenue passenger kilometer).
From the brink of bankruptcy, SpiceJet has navigated well and continues to reach higher altitudes. SpiceJet stole the show on all counts in the month of July 2017. It witnessed 80bps (MoM) rise in the market share, 1,070bps rise in passenger growth, 590bps rise in ASK (available seat kilometer) and 730bps rise in RPK.
Jet Airways continues to struggle to gain market share. Though it gained 50bps market share in July 2017, it is still below the high of above 20 percent market share that it achieved in July 2014. Its RPK witnessed a fall of 500bps (MoM) and ASK increased by 310bps (MoM).
23/08/17 Nitin Agrawal/Moneycontrol