Aviation stocks continue to be on a roll and have delivered returns much higher than the benchmark indices such as the Sensex and the Nifty year to date. Interglobe Aviation, Jet Airways and Spicejet have given 39%, 97% and 139% return year on year. The Sensex and the Nifty have delivered 31% return on a year on year basis.
The domestic aviation industry has been on a growth path clocking double-digit passenger growth for a long time now and the month of October 2017 was no exception. The passenger growth was reported at 20.6% in the month of October 2017 and was higher compared to the months of August and September 2017.
Seasonal weakness and engine issues faced by Indigo and GoAir had slowed down the performance of the sector to some extent in the month of June, July and August. This also had an impact on the overall domestic load factor that had fallen 270bps on a month on month basis to 83.2% in the month of July 2017. The growth in passenger traffic along with the load factor has managed to recover in the following months of August, September and October 2017. The load factor was reported at 84.8 for the aviation industry in the month of October 2017. The sustained recovery was on account of engine issues sorted out by Indigo and GoAir.
Rise in aviation turbine fuel price in the month of October 2017 would affect the cost structure of airlines for the third quarter of the FY 2017-18 to some extent as well. In Delhi, Aviation turbine fuel (ATF) will now cost Rs. 54,143 per kilolitre (kl), Rs. 1,098 per kl more than Rs. 53,045 (October 2017) previously according to oil companies. This is the fourth consecutive monthly hike in ATF price, the last being 6 per cent (by Rs 3,025 per kl) on October 1.
Interglobe Aviation which flies the airline IndiGo continues to lead in the aviation sector with a market share of 39.7% in October 2017. The market share rose by 17bps in October 2017 from August 2017 on the back of engine problems that were sorted out for its A320neo aircrafts. The company had grounded 13 aircrafts due to engine issues in the earlier months which had resulted in a rather unimpressive performance on all parameters in the month of July 2017. The growth is back on track for the airline after some struggle.
The engine problem had led to a single-digit growth in passenger traffic but it has recovered to lower double digit growth in the following months of August, September and October 2017. Its load factor has also increased to 87.3 percent on the back of a significant recovery in the RPK (revenue passenger kilometre) in the month of October 2017.
SpiceJet had performed well on all counts in the month of July 2017 but as the engine issues for Indigo were sorted out in the following months the market share as well as the load factor reduced by some percentage points. It witnessed 70bps (MoM) fall in the market share, 50bps fall in load factor and 620bps fall in Passenger growth.
Jet Airways continues to struggle to gain market share. It lost 50bps market share in October 2017, it is still below the high of above 20% market share that it achieved in July 2014. However, it has managed to grow the load factor by 50bps (MoM) and passenger growth by 1070bps in the month of October 2017.
Progress on the Udaan Scheme
To provide a major boost to air connectivity in the Northeast, 92 new air routes will be opened in the region in the second round of the Government’s Udaan scheme. Udaan is a regional connectivity scheme under which the government plans to provide connectivity to remote areas and enhance access in under-served regions. The scheme has enabled the government to add 30 new airports on the aviation map in tier-2 and tier-3 cities under the first round. The second round of bidding commenced in the month of August 2017. The civil aviation ministry has received as many as 141 initial proposals for operating flight and helicopter services on 502 routes, connecting 126 airports and helipads.
As long as the growth in passenger traffic remains robust for the aviation industry it would be able to handle the impact of rise in the aviation turbine fuel prices, if at all it continues to rise.