Low-cost carriers may fly high this results season

MUMBAI: There may be a definite traction in the way Indian economy is bouncing back. But for the aviation sector, the revival is anything but smooth. Analysts feel most airlines’ Q2 results may just fall short of the mark as less passengers took to the skies in September. There’s a saving grace though. Low-cost carriers are seen to report better EBIDTA ( earnings before interest, taxes, depreciation and amortisation) margins on the back of operational efficiencies.

According to statistics made available last week by the Directorate General of Civil Aviation, India’s airline regulator, airlines carried a total of 3.91 million passengers in September, up 11.58% from the same month last year, but down when compared to 4 million in August and 4.1 million in July for this year. “Second quarter is always a weak quarter, the first, third and fourth being the best — air traffic grew at 20% for the first quarter of 2010. The growth trend was visible till the third week of August, but September has been a little depressed this year,” said
Kapil Kaul, CEO, Centre for Asia Pacific Aviation.

Experts expect low-cost carrier SpiceJet to post a 30% uptick in sales to Rs 547 crore during the second quarter despite a smaller fleet size. They, however, differ on profit figures. An aviation analyst with a brokerage firm said the airline will post a net profit of Rs 40 crore. But Rashesh Shah, aviation analyst at ICICIdirect.com, said the airline will incur a loss of about Rs 70 crore. Unlisted low-fare carrier IndiGo surprised many when it announced its results for 2010 with a net profit of more than Rs 500 crore. "IndiGo numbers will be good again," predicted Mr Kaul.

Other listed carriers Jet Airways and Kingfisher Airlines are expected to be in the red because of seasonal factors. “Jet is expected to report a net consolidated loss of Rs 158 crore during the quarter. On the back of seasonal weakness during the second quarter, we expect to see a 5-6% drop across yields and loads on a sequential basis," said Nikhil Vora, analyst, IDFC. Jet's revenue growth is likely to be 18% year-on-year, down by 9% over the first quarter of this year. The Naresh Goyal-controlled airline is likely to post revenues of Rs 3,109 crore in the second quarter, wrote ICICIdirect.com's Mr Shah in a recent research report. Kingfisher Airlines is expected to suffer a loss of Rs 250 crore. The airline will see a growth of 16.8% year-on-year in revenues, down 22% from its first quarter revenues with estimated sales of Rs 1,333 crore for the second quarter, according to Mr Shah. Mr Vora, however, believes, the airline will struggle through the quarter and for the next, too.

There is a feeling that there will be a squeeze on margins because of topline growth and rising jet fuel prices. Fuel costs have gone up by 5-6% in the past four months.

The good news, however, is barring the second quarter, airlines will see the most profitable year in aviation this year compared to the past couple of years, with the expected load hitting about 80% for the rest of the year, analysts feel. “Airlines can expect international load factors to be between 75% and 80% and for domestic routes between 70% and 77% and this is fairly consistent and likely to continue for the rest of the year," said Mr Vora.