Aviation Q3FY19E Result Preview: Lower fuel costs coupled with price discipline to help improve the financial matrix

Key financial parameters for IndiGo and SpiceJet to show improvement qoq, while Jet Airways to continue to deteriorate

Jan 17, 2019 08:01 IST India Infoline News Service

We expect top three airline companies (IndiGo, Jet Airways and SpiceJet) on cumulative basis to report net loss for the Q3FY19. However, barring Jet Airways, financial parameters for the remaining two are likely to improve on qoq basis primarily on the back of lower fuel costs. In addition, yields are likely to improve due to price discipline measures taken during the quarter under consideration. However, pick up in yields will come at the expense of volumes as capacity utilizations have been under pressure (down up to 5% yoy) during the period. Utilization may remain under pressure qoq due to aggressive capacity addition by the market leader i.e. IndiGo. On yoy, PAT is likely to be lower due to ~40% yoy increase in fuel costs. We may witness earnings upgrade due to sharp drop in fuel expenses, however any bounce back in benchmark crude oil prices will pose downgrade risk. We are bullish on SpiceJet, considering its strong fleet size to capture demand growth, improvement in fuel efficiency and lower maintenance cost going ahead.

Q3FY19 Consensus Estimates

In Rs cr Change %
IndiGo Q3FY19 yoy qoq
Sales         7,933 28.4 28.3
EBITDA            627 -67.6 40.4
EBITDA Margin (%) 7.9% (2343)bps 70bps
PAT               97 -87.3 -

• We expect IndiGo to report `97cr profit vs. `317cr loss in Q2FY19 due to lower fuel costs and pick-up in yields.
• However, PAT to decline 87.3% yoy owing to higher fuels expenses and yoy drop in passenger load factor (PLF) levels.
• We expect industry PLF to remain under pressure as IndiGo will continue to add capacities with over 30% rate.

In Rs cr Change %
Jet Airways Q3FY19 yoy qoq
Sales         6,520 1.7 2.5
EBITDA           -177 - -
EBITDA Margin (%) -2.7% (1792)bps (500)bps
PAT           -466 - -

• We expect another disappointing quarter from Jet as benefits from expansion will be offset by PAX de-growth. Bottom-line to remain deep in the red qoq despite lower fuel costs and other non-fuel expenses.
• We expect financial performance to continue to deteriorate as the company has been struggling to meet primary expenses amid challenging industry environment
In Rs cr Change %
SpiceJet Q3FY19 yoy qoq
Sales         2,471 18.7 31.4
EBITDA            185 -66.8 1,159.2
EBITDA Margin (%) 7.5% (1931)bps 670bps
PAT             -54 - -

• We expect top-line to exhibit robust growth driven by passenger growth and pick in yields. Growth may accelerate going forward with capacity expansion through induction of B-737 aircraft.
• However, its industry leading PLF may come under pressure as capacity expansion to outpace passenger growth due to aggressive capacity expansion in the industry.

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