What to expect from Q3 results of IndiGo, SpiceJet, Jet Airways

For aviation companies, the new year has started on an upbeat note, thanks to a reduction in aviation turbine fuel (ATF) prices. However, it will be a while before those benefits begin to reflect in their financials. Expectations from the December quarter (Q3) results of listed domestic airlines—IndiGo (InterGlobe Aviation Ltd), SpiceJet Ltd and Jet Airways (India) Ltd—are not too optimistic.

For one, during Q3, average ATF prices remained high, rising by 5% from the September quarter. Fuel comprises the bulk of airlines’ costs and therefore, high fuel prices erode profits. Secondly, the rupee depreciated against the dollar on a year-on-year basis, which swells other dollar-denominated costs. These factors will weigh on aviation firms’ financials for the third quarter.

Having said that, Q3 is a seasonally strong period and that could help offset the impact of high crude oil prices and a weak rupee to some extent. This means the cumulative net loss of ₹ 2,340 crore that the listed airlines posted in the September quarter is set to narrow in the December quarter.

ICICI Securities Ltd expects all the three airlines to report significantly lower Ebitda losses compared to the September quarter. Ebitda is short for earnings before interest, tax, depreciation and amortization.

“Aggregate domestic capacity addition was 19% in Oct-Nov 2018 whereas passenger growth was 12%,” wrote Ansuman Deb of ICICI Securities in a 10 January report. This, and the fact that airlines raised fares, resulted in a drop in passenger load factors. Higher overall volumes and fares vis-à-vis the September quarter should however result in lower losses, say analysts.

It goes without saying that yield performance will be worth tracking for these airlines. IndiGo’s commentary on capacity addition will be another measure investors should follow closely.

Given the hit on profitability, investors haven’t had much luck on airline stocks. Shares of the three airlines have underperformed the BSE 500 index so far this fiscal year. Jet Airways, of course, has lagged the most due to its financial troubles.

Fuel prices were cut sharply starting January and that’s a silver lining. While this is a heartening shift, the big question is whether lower fuel price conditions will persist. But investors will find it tough to take a call on this one because crude oil prices are difficult to predict.