Tuesday, August 21, 2018

Rapid recovery in margins for Indian Airlines unlikely: Fitch

Profitability for Indian airlines is unlikely to recover materially in the near term as new aircraft deliveries will continue to exert pressure on fares, which airlines have not been able to rise to keep pace with cost increases because of fierce competition, Fitch Ratings says. However, we believe industry margins in H118 appear close to bottom as the weak financial profiles of some airlines are likely to force them to review their operating strategies.
The rise in crude oil prices and a weakening rupee have combined to increase operating costs for Indian airlines. Industry leader InterGlobe Aviation Ltd (IndiGo) reported a 42% decline in EBITDAR in the first quarter of financial year ending March 2019 (FY19), or Q218. Jet Airways Ltd, which has the second-largest domestic market share, postponed the announcement of its Q1FY19 results after reporting an EBITDA loss in Q4FY18 and Rs3100cr of long-term debt due in FY19.
India is the world's fastest-growing major aviation market in terms of domestic passenger traffic growth, with revenue passenger kilometres (RPK) growing by 21% in H118. However, capacity growth has also largely kept pace with demand with available seat kilometres (ASK) increasing by 18% in H118. Indigo is the clear market leader with around 40% share of the domestic market in terms of passengers carried in Q2FY18, with Jet Airways a distant second with around 15% share. In total, six operators have market shares in excess of 5% and competitors are focusing on improving their presence in the highly price-sensitive market. As a result, passenger yields have remained weak with Indigo's yield declining by 5% in Q2FY18, despite severe cost pressure.
21/08/18 India Infoline