Wednesday, December 06, 2017

Indian low-cost carriers ready for takeoff: HSBC

HSBC has initiated coverage on three Indian airlines—Spicejet, Jet AirwaysBSE 2.04 % and InterGlobe Aviation, which runs IndigoBSE -0.95 %, on the grounds the industry is ready for a takeoff. “The future looks highly profitable, particularly for the low-cost carriers,” said HSBC analysts Achal Kumar, Andrew Lobbenberg and Parash Jain in a client note.

Reasons for the bullish outlook
HSBC said the industry has gone through structural changes in the last couple of years. “Government policies are now favourable, the market has consolidated, yield has bottomed, and although the fuel price has started rising, forex and more fuel efficient fleets will offset the impact,” its analysts said. The industry reported a combined operating losses of Rs 420 billion (Rs 42,000 crore) for the 10-year period to FY15, which was the low point, said HSBC.

How will the industry shape up?
HSBC said the demand and supply equation will favour growth in yield — the key driver of the sector, calculated by dividing passenger revenue by revenue passenger kilometres. “Over the next four years, traffic growth (14.5 per cent) will be faster than capacity grow (13.5 per cent),” its analysts said.

Why do low-cost carriers have better prospects?
HSBC said low-cost carriers will increase their market share by 2.5 percentage points to 66.5 per cent in 2017. “Over 2017-21e LCCs will grow capacity at a CAGR of around 19 per cent, enabling them to increase their domestic market share to more than 70 per cent (according to the latest fleet plans of all the Indian carriers) over the next 4-5 years, improving their profitability in the process,” its analysts said.
06/12/17 Econoic Times