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The Centre for Asia-Pacific Aviation (Capa) expects SpiceJet to post a loss of Rs 240-300 crore, excluding one-offs, for the December quarter, while rival Jet Airways is expected to post a Rs 120-180 crore profit in this quarter.
With the help of declining fuel prices, GoAir and IndiGo are expected to register profits, too.
“Overall, the quarter was a very positive and stable one,” Capa said in its result estimates. It, however, dropped a word of caution, saying discount pricing in the March quarter could contribute to negative results and affect overall financial results for 2014-15.
Capa said domestic airlines would induct 12 planes in the March quarter and 30 more planes in 2016.
In a revised outlook for 2014-15 earlier this week, it said India’s beleaguered aviation industry was starting to see some signs that could possibly mark the beginning of a structural turnaround in fortunes. It added the sharp decline in fuel prices was a major source of relief in a market, where aviation turbine fuel was subject to some of the highest taxes in the world.
Other key contributors to the more positive outlook include an improving economic environment, and recent actions by the civil aviation ministry which suggest it is seeking to create a more enabling environment for the industry.
“Domestic carriers pay up to 50% more for fuel than in say Dubai or Singapore. Between Sep-2014 and Jan-2015 into-wing ATF prices in India declined by 24%. With fuel accounting for around half of operating expenditure for Indian carriers this represent a 12% reduction in costs. India’s oil companies have yet to pass on the full extent of the decline in global fuel prices; so further reductions are expected by the end of January. The decline in oil prices is perhaps the greatest single reason for the improved sentiment in the industry,” the report said.
Some progress is also being achieved in tackling the high levels of sales tax on ATF, which is levied at a state level. The Central government has been actively encouraging states to reduce sales tax to 4%, arguing that the economic benefits from increased connectivity and traffic will far outweigh any loss in revenue. While some small states have cut taxes, the key to achieving a meaningful impact at an industry level is a reduction in tax at three of the largest airports – Delhi (tax at 20%), Mumbai (25%) and Chennai (29%).
“Following the election of a new administration in May-2014, voted in with an agenda of kick-starting economic growth, business and consumer confidence has been steadily improving. And the Central government budget in Feb-2015 is expected to introduce some bold measures aimed at setting a long term direction for India’s economic growth story. GDP is expected to expand by 5.5% in the 12 months ending 31-Mar-2015, increasing to 6.0% in FY2016 and possibly sustain levels of 7.0% thereafter,” the report said, adding that travel management companies report that business travel is picking up, which is reflected in the increased focus by Air India, Jet Airways and Vistara on the full service market.
The report also said the government was playing a more pro-active role in helping the industry, like in the case of SpiceJet, where the ministry facilitated the rescue by encouraging creditors to provide some breathing space for the airline to secure an investor. This approach was a very welcome departure from the past and averted the closure of the airline and the potential loss of jobs and confidence.
“In the case of Vistara the Ministry agreed to provide a waiver on Route Dispersal Guideline obligations for the first six months in recognition of the impracticalities of this whilst operating just a couple of aircraft. There also appears to be a strong intent to abolish the 5 year/20 aircraft rule, while misguided proposals such as the regulation of fares have been dropped,” the report said.
The peak third quarter was stronger than expected. Capacity growth in 3Q2015 was moderate due to significant but gradual reduction in capacity by SpiceJet which offset much of the expansion by other carriers. SpiceJet’s challenges in Nov/Dec-2014 also led to many passengers choosing to book on other airlines, resulting in improved yields for SpiceJet’s competitors which should drive better than expected financial results in 3Q2015. Overall India’s carriers could add 12 aircraft in 4Q2015 and more than 30 aircraft in FY2016.
India is expected to end the current financial year with double-digit growth, which should sustain into FY2016. At the beginning of FY2015 CAPA projected that domestic traffic would grow at 6-8% while international would expand by 10%. The actual domestic result for the 12 months ending 31-Mar-2015 is now on track to be in the range of 10-12% while international traffic will likely be as forecast. The stronger than expected domestic growth is largely due to the stimulatory impact of lower fares arising from the reduction in fuel prices.
