IndiGo and SpiceJet fly on Jet Airways' woes, may garner profits in Q4

Problems at Jet Airways have helped IndiGo and SpiceJet gain market share and benefit from a surge in air fares despite a muted passenger demand. After several quarters of decline, yields are expected to have gone up by 15 per cent in the March quarter, thereby helping both the companies boost their revenues and profits.  

 
On the revenue front, the gains for both, IndiGo and SpiceJet, will come in passenger growth, as well as, a rise in fares. Analysts at Elara expect Indigo to benefit more than SpiceJet because of the rise in fares, as the carrier has more exposure to metro routes where fares have gone up sharply, owing to Jet Airways' financial woes.

IndiGo is expected to report a revenue growth of 34 per cent to Rs 7,721 crore on the back of a 20 per cent growth in passenger volume and a 14 per cent rise in prices. Given the net profit estimate of Rs 480 crore in the quarter, analysts at ICICI Securities expect IndiGo to even report a net profit for FY19. The company had made profits in the June and December quarters but this was negated by a Rs 652 crore loss in the September quarter.

The company has also increased its domestic market share to 45 per cent while on international routes it has doubled its market share to 8 per cent capitalising on the markets vacated by Jet Airways. What should enable the company to increase its incremental markets share is the induction of A-321 fleet with 222 seats. The company inducted 5 neos in the last quarter. 

For SpiceJet, the revenue growth of 26 per cent is expected to have been driven by 11 per cent growth in volumes and a 15 per cent rise in fares. This, coupled with lower fuel costs, should help the company report a profit of about Rs 85 crore in the quarter on revenues of Rs 2,574 crore. Given the grounding of most of its fleet, Jet Airways is expected to end the quarter with a loss of Rs 600 crore. 

Of the three listed players, analysts at Elara prefer SpiceJet as their top pick. They believe there is little competition in regional routes (key focus area of SpiceJet) and strong fleet order book. Further, SpiceJet, according to them, is better placed to hire outgoing Jet Airways pilots, as both carriers are flying similar Boeing-737 aircrafts on domestic routes.