stock gained 4.3 per cent, thanks to the introduction of new regional routes and expectations of improving profitability from FY21. The carrier launched 20 new flights effective March-end, which will add to its existing network and, more importantly, to a couple of regional routes.
With the latest additions, flights under the regional connectivity scheme have now increased to 52 destinations — the highest in the sector. Yields from regional destinations tend to be higher, given the shorter distance and lower competition, compared to the pricing pressures in busier routes including metros.
Analysts said that the new routes could enhance utilisation for the Boeing 737-800 and Bombardier Q400 aircraft, which will be deployed for these routes.
The company now has a total of 82 Boeing 737s, two Airbus A320s, and 32 Bombardier Q-400 aircraft as part of its fleet.
While the addition of new routes is a positive, the key trigger for the stock is the induction of Boeing 737
MAX to its fleet.
Analysts at Edelweiss Research said while the revenue passenger kilometre growth of 46 per cent — expected in FY20 — has been boosted by the addition of 30 B737 NGs from Jet Airways, FY21 growth is likely to be buttressed by the addition of 737 MAX.
Higher capacity (220 seats against 180 for the 737 NG), along with 20 per cent higher fuel efficiency is expected to boost profitability. Non-fuel unit costs slipped 10.6 per cent sequentially in the December quarter to Rs 2.7 per kilometre, a figure expected to drop further as new planes replace the older 737s. With these costs expected to reduce by a further 4 per cent over the next couple of years, the firm is expected to bridge the 7 per cent gap with market leader IndiGo.
In addition to efficiencies from the induction of the MAX aircraft, the fuel bill is likely to decline on account of lower crude oil prices and a higher international mix.
ICICI Securities expects unit fuel costs to decline by 9 per cent during FY19-22. While there is uncertainty over traffic growth because of the coronavirus outbreak, analysts believe that yields on international routes are better, as some of the slots vacated by Jet Airways have not yet been replaced.
On the domestic front, the delay in ramping up of capacity across carriers is also a major positive, given the muted growth in passenger traffic.