Tuesday, June 12, 2018

A costly drop — airlines skid on high fuel prices

Yet again, it was a quarter of contrasts for airlines in India. With a key difference, though. Unlike Jet Airways that stood out like a sore thumb in the first nine months of fiscal 2017-18 with a sharp dip in profits, it was SpiceJet that bucked the trend in the March 2018 quarter with profit growth in contrast to the profit crash of peers.

Also, striking was the sharp reversal in the performance of market leader IndiGo Airlines — from stellar profit growth in the prior three quarters to a washout in the latest March quarter.

The airlines’ bottom lines tell the story. In the March 2018 quarter, IndiGo’s profit crashed 73 per cent y-o-y to ₹118 crore, the lowest since its 2015 public offer. Jet Airways posted a loss of ₹1,036 crore compared with a profit of ₹602 crore in the year-ago period. However, SpiceJet saw its profit grow, even if at a modest 11 per cent y-o-y, to ₹46 crore. But for the ‘other income’ of ₹258 crore, IndiGo would also have ended up in the red like Jet Airways.

The weak show in the sector is disconcerting because it comes on a low base; the year-ago period (March 2017 quarter) was also a weak one, impacted by demonetisation, rising costs and low fares.

The pull-back in performance in the March quarter is apparent from the airlines’ showing in the nine months ended December 2017 — when IndiGo’s profit had zoomed 74 per cent y-o-y to ₹2,125 crore, SpiceJet’s profit had risen 34 per cent y-o-y to ₹521 crore and Jet Airways managed to stay in the black even though its profit fell about 70 per cent y-o-y to ₹268 crore.

This decline and difference in the latest March quarter were driven by two old bugbears — a steep rise in the cost of aviation turbine fuel (ATF), and weak pricing power (inability to price tickets to meet costs). This more than offset the benefit of continued strong passenger traffic growth (nearly 24 per cent y-o-y growth overall) and high load factors in the sector.
12/06/18 Anand Kalyanaraman/Business Line