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How IndiGo and SpiceJet can gain from Jet's financial woes

Ram Prasad Sahu/ 11 Apr 19 | 02:12 PM

Even as passenger demand continues to be muted, problems at Jet Airways has helped IndiGo and SpiceJet gain market share and benefit from a surge in ticket prices. After several quarters, yields are expected to have gone up by 15 per cent in the March quarter. This would help both companies boost their revenues and profits.  

Analysts at Elara expect Indigo to benefit more than SpiceJet because of the fare hike as it has more exposure to metro routes where fares have gone up sharply, owing to the financial woes of Jet Airways. IndiGo is expected to report a revenue growth of 34 per cent at Rs 7,721 crore on the back of a 20 per cent growth in passenger volume and 14 per cent rise in ticket prices. Given the net profit estimate of Rs 480 crore in the quarter, analysts at ICICI Securities expect IndiGo to report profits even for the full year. The company reported profits in the June and December quarters but this was negated by a Rs 652 crore loss in the September quarter of 2018.

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IndiGo 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 routes 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 SpicJet, revenue growth of 26 per cent is expected to be driven by 11 per cent growth in volumes and 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 that there is little competition in regional routes (key focus area of SpiceJet) and A strong fleet order book. Further, SpiceJet is better placed to hire outgoing Jet Airways pilots, as both carriers are flying similar Boeing-737 aircraft in domestic routes.

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