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Business News/ Markets / Mark To Market/  Jet Airways crisis gives wings to IndiGo in Q4; yield performance is the key
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Jet Airways crisis gives wings to IndiGo in Q4; yield performance is the key

IndiGo’s spreads have improved to ₹0.28 for the March quarter, from ₹0.09 in December quarter
  • Management said first quarter of FY20 has had a good start, but visibility weak for the second quarter
  • An IndiGo Airlines Airbus A320 aircraft takes off in Colomiers near Toulouse, France. (Reuters)Premium
    An IndiGo Airlines Airbus A320 aircraft takes off in Colomiers near Toulouse, France. (Reuters)

    Shares of InterGlobe Aviation Ltd, which runs IndiGo, India’s largest airline by market share, touched a 52-week high on the National Stock Exchange during the day, before the release of March quarter results after market hours.

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    It was widely anticipated that listed aviation firms such as IndiGo and SpiceJet Ltd would reap the benefits of Jet Airways (India) Ltd’s crisis. IndiGo has fared well during the March quarter against that backdrop. Its yields (a measure of pricing arrived at by dividing passenger ticket revenue by revenue passenger km) increased by 12% year-on-year, exceeding Street expectations. The company’s revenues increased by 36% compared with the year-ago period. However, it remains to be seen if such healthy revenue trends sustain.

    Commenting on the revenue trends, the management said its revenues in April were better than in March. This is a fallout of the shutdown of Jet Airways. “By May, however, as the industry has added capacity to Jet markets, the Jet Airways effect has started to dissipate and by June I think the effect will pretty much disappear except in a few international markets where we overlapped with Jet as in the Middle East markets," Ronojoy Dutta, chief executive officer of InterGlobe Aviation, said in an earnings call.

    “So, we are off to good start for the first quarter but I have to emphasize that we have no visibility at this time of the seasonally weak second quarter," said Dutta.

    For the March quarter though, robust revenue growth on the back of better volumes and a decline in fuel costs as a percentage of revenues boosted IndiGo’s Ebitdar by as much as 90% to 2,056.3 crore. Ebitdar is earnings before interest, tax, depreciation, amortization and lease rentals, which is a key profitability metric for airlines.

    What’s more, according to the company presentation, spreads or revenue per available seat km minus cost per available seat km have improved further from 0.09 in the December quarter to 0.28 in the March quarter. Note that the measure was negative 0.51 in the September quarter.

    IndiGo has been a key beneficiary of Jet Airways’ shutdown in terms of market share gains even as domestic passenger traffic growth has declined 4.5% in April. However, the jury is still out on how long IndiGo’s gains would sustain.

    “While their traffic growth in April was at 20% year-on-year and market share improved to 50%, we expect more aggression from SpiceJet in the coming months which may negatively impact IndiGo," said Mayur Milak, an analyst at IndiaNivesh Securities Ltd. Moreover, Brent crude prices are not particularly low at about $70 per barrel, which is why it is imperative that pricing remains strong for the sector.

    Nonetheless, for now, the strong March quarter results, may well keep the IndiGo stock in favour.

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    ABOUT THE AUTHOR
    Pallavi Pengonda
    Pallavi is a deputy editor at Mint and heads the Mark to Market team. This column covers wide-ranging topics related to the stock markets, offering an in-depth analysis of financial reports of companies. She writes and edits across verticals, covering the breadth of the Indian stock market. Pallavi has done her master of management studies, specializing in finance.
    Catch all the Business News, Market News, Breaking News Events and Latest News Updates on Live Mint. Download The Mint News App to get Daily Market Updates.
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    Published: 27 May 2019, 11:27 PM IST
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