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Aviation stocks had barely recovered from poor performance of Q4FY18 when they are being hit by offering of lucrative fares and discounts on domestic and international flight tickets. As it is the off-season given the monsoon, Jet Airways is offering a discount of 20% on base fare on international flight tickets. Indigo is offering domestic flight tickets at a starting price of Rs1,212. SpiceJet is also offering direct domestic flight tickets at a starting fare of Rs999 under its 'Mega Monsoon Sale'. AirAsia India is offering domestic flight tickets at a starting price of Rs999 and international flight tickets starting from Rs3,399.
Earlier all the listed aviation stocks - SpiceJet, Jet Airways and Indigo had plummeted due to poor Q4FY18 numbers owing to rise in air turbine fuel (ATF) prices.
We are positive on Indigo and SpiceJet for the long term. Indigo is transforming strategically in order to gain market share (current market share of ~40%) through (1) shifting from pure sale and leaseback models to buying aircrafts, (2) targeting shorter term leases, while the Neo engine issues are resolved, and (3) increasing focus on regional routes (inducting ATRs vs. single aircraft type). The profitability is expected to rise on improving yields and fleet modernization in the long term. However, profits in the medium term may be impacted by rise in crude price and rupee depreciation.
SpiceJet is participating in the UDAN scheme (connecting unserved and underserved airports at affordable cost by providing subsidy to the operators), which will aid more routes. Better availability on non-metro routes is its competitive advantage. SpiceJet’s three-year average revenue per available seat-kilometre (RASK) is 4.0 vs. 3.6 of market leader - Indigo, indicating better efficiency. Highest passenger load factor of more than 90% (since ~3 years) in the industry bodes well for SpiceJet. Further, launch of sea planes could be a growth trigger in the long-term.
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