Thursday, September 07, 2017

IndiGo-Jet deal could set stage not just for consolidation, but sector turnaround

There is a famous old joke in the airline industry: “How do you become a millionaire in the airline industry? Start as a billionaire and buy an airline”. Things are clearly not as bad they used to be: Legendary investor Warren Buffett, who once called airline industry a death trap, has invested in four major US airlines in recent times.

Apart from the impact of benign oil prices, there’s another positive: Structural changes are taking place within the industry, one of which is consolidation.

The Indian aviation sector continues to remain an attractive market, with the top three players (IndiGo, Jet Airways, and SpiceJet) commanding more than 70 percent of market share. In addition, the market has witnessed double-digit passenger growth for a while now. However, these tailwinds are yet to translate into pricing power.
Interglobe Aviation (IndiGo), the leader in Indian skies, had expressed interest in acquiring Air India’s international business and Air-India Express, a low-cost carrier, when the government expressed its intention to privatise the flag carrier. As per press reports, if the deal with Air India does not fructify, then IndiGo might look at Jet Airways (Jet), indicating IndiGo’s clear focus on gaining market share in international markets through the inorganic route.
Should the deal with Jet fructify, it would lead to major consolidation. The deal would leave the industry with two large players – Indigo–Jet and SpiceJet. We believe such consolation that stands to boost yields, coupled with benign fuel prices, would place the industry in a sweet spot.
IndiGo dominates the Indian skies with 40 percent market share and has an overall market share of 34.9 percent. Its passenger (pax) traffic registered a significant growth of close to 28 percent compounded over FY12-17, as against industry growth of close to 10 percent on the back of its no-frill products at competitive prices, reach and on-time performance.
Unlike IndiGo, which is a Low Cost Carrier (LCC) with no-frill products, Jet is a full service carrier (FSC), with an array of offerings including free meals on board, lounge facility etc.
07/09/17 Nitin Agrawal/Moneycontrol 
To Read the News in full at Source, Click the Headline

0 comments:

Post a Comment