16June 2022 India | Aviation | Sector Update
Aviation
Soaring fuel price and increased competitive intensity to challenge recovery
Indicative passenger traffic for May’22 implies an increase of 8.8% MoM. Early trends Ashutosh Somani
ashutosh.somani@jmfl.com | Tel: (91 22) 66303083
for June indicate similar traffic monthly rate - averaging ~0.37mn daily, similar to pre-
Heet Vora
pandemic levels. Last reported domestic PLF for Apr’22 witnessed a decline MoM across heet.vora@jmfl.com | Tel: (91 22) 66303018
airlines with Indigo’s PLF at 79.7% (-1.3ppt MoM) and Spicejet’s PLF at 85.9% (-1.0ppt
MoM). However, utilisation levels are expected to improve in May/June in tandem with
traffic strength. JM fare tracker indicates a ~9% increase in fares QoQ (limited routes).
However, ATF prices have more than doubled YoY and are up 36% QoQ in 1Q to
average a record c.INR123.3k/kl. Spot ATF prices now stand at an all-time high of Domestic – monthly PAX (mn)
INR143.4k/kl spot. Further, INR has depreciated by ~5% YTD / 3.5% QTD to ~INR78
spot. This will further adversely impact airlines given ~70% of costs are dollar
denominated. Despite taking a significant price increase, Airlines may be required to
take further hikes to offset the surge in ATF price, possibly reaching a point of demand
elasticity in travel industry.
The aggregate market share of TATA group backed airlines stand at 22.1% as of Apr’22
(last reported). The recent acquisition of Air Asia by Air India is likely to provide greater
Source: DGCA, JM Financial; Note:May-June’22 data calculated using daily PAX
synergies and improve competitiveness going forward. Competitive intensity in the reported
Airlines sector is expected to intensify with the addition of Akasa Air and Jet Airways.
We believe Indigo’s share price at CMP adequately factors the improving (expected) ATF prices (INR/kl)
momentum in passenger demand. Further, the stock is likely to remain under pressure
given 1) increasing competitive intensity in the airlines industry 2) margin pressure given
surge in ATF prices / INR depreciation 3) decision of Rakesh Gangwal to reduce his
36.6% stake in the company over the next 5+ years which is likely to cap stock
performance. A 5% movement in crude oil is expected to impact EBITDAR by ~8.5%.
The stock currently trades at 7.1x FY24E EV/EBITDAR – re-iterate SELL.
Daily passenger traffic back to pre-pandemic levels: Indicative passenger traffic for
May’22 implies an increase of 8.8% MoM. Early trends for June indicate similar Source: IOCL, JM Financial; 1QFY23 prices are average till 16th June2022
traffic monthly rate - averaging ~0.37mn, similar to pre-pandemic levels. Last
reported domestic PLF for Apr’22 witnessed a decline MoM across airlines with Domestic mkt share by PAX – Apr’22 (%)
Indigo’s PLF at 79.7% (-1.3ppt MoM) and Spicejet’s PLF at 85.9% (-1.0ppt MoM).
However, utilisation level is expected to improve in May/June in tandem with traffic
strength. JM fare tracker indicates a ~6% increase in fares QoQ (limited routes).
Indigo witnesses market share gains: Indigo witnessed market share gain during
Apr’22 despite increasing competitive intensity from TATA group backed airline
companies. The market leader’s share has grown to 56.7% in Apr’22, up 230bps
MoM. Tata group companies witnessed market share loss by 230bps MoM to reach
22.1%.
ATF prices at all time high levels: ATF prices have more than doubled YoY and are up Source: DGCA, JM Financial Note: Tata Grp. Co’s incl. Air India, Air Asia
and Vistara
36% QoQ in 1Q to average a record c.INR123.3k/kl. Spot ATF prices now stand at an
all-time high of INR143.4k/kl spot. This is likely to adversely impact profitability of
Airlines. Despite taking a significant price increase, Airlines may be required to take
further hikes to offset the surge in ATF price, possibly reaching a point of demand JM Financial Research is also available on:
elasticity in travel industry. . Bloomberg - JMFR <GO>,
Thomson Publisher & Reuters
S&P Capital IQ and FactSet and Visible
Alpha
Please see Appendix I at the end of this
report for Important Disclosures and
Disclaimers and Research Analyst
JM Financial Institutional Securities Limited
Aviation 16 June 2022
Exhibit 1. Domestic Passengers Carried - monthly (mn) Exhibit 2. Domestic market share by PAX carried – monthly (%)
Source: DGCA, JM Financial; Note: Jet airways incl. Jet Lite, Tata Grp. Co’s incl. Air India, Air Asia and Vistara Source: DGCA, JM Financial; Note: Jet airways incl. Jet Lite, Tata Grp. Co’s incl. Air India, Air Asia and Vistara
Exhibit 3. Domestic Passenger Traffic (In million)
Particulars (mn) 3QFY22 4QFY22 Feb'22 Mar'22 Apr'22 May'22 Jun'22
PAX 30.0 24.7 7.7 10.6 10.5 11.4 11.2
PAX – Pre-Covid 38.2 35.4 x12.4 11.6 11.0 12.2 12.0
% of Pre-Covid times 78% 70% 62% 92% 95% 94% 93%
Source: Ministry of Civil Aviation, Note: Jun'22 numbers are calculated using the run-rate for 14 days reported
Exhibit 4. Domestic passenger growth (YoY) (%)
FY19 FY20 FY21 FY22 Aug-21 Sep-21 Oct-21 Nov-21 Dec-21 Jan-22 Feb-22 Mar-22 Apr-22
Air India 4.7 (0.2) (67.3) 69.2 188.1 87.9 148.8 78.7 57.7 (2.4) (6.7) 19.2 19.2
Air Asia 46 29 (62) 32.6 81.2 75.8 53.0 47.8 39.6 (44.5) (14.4) 29.0 66.8
Vistara 23 50 (59) 98.4 293.8 136.7 105.1 86.0 86.6 (7.0) 38.5 91.3 190.9
Jet Airways (9.0) NA NA NA NA NA NA NA NA NA NA NA NA
SpiceJet 9.5 24.9 (67.9) 18.3 49.2 13.5 15.1 28.3 21.0 (31.4) (14.8) 1.8 41.9
Go Air 16.1 21.7 (73.7) 98.4 244.9 119.9 123.8 100.2 82.3 0.2 26.3 70.6 102.7
Indigo 22.4 13.6 (56.9) 58.9 126.9 74.7 64.2 66.7 55.4 (15.4) (6.8) 38.2 93.2
Total Domestic 13.8 0.8 (62.2) 57.8 131.1 74.8 70.7 65.3 53.3 (16.8) (1.7) 36.4 83.4
Source: DGCA, JM Financial; Note: Jet airways include Jet Lite;
Exhibit 5. Domestic passenger load factor (%)
FY19 FY20 FY21 FY22 Jun-21 Jul-21 Aug-21 Sep-21 Oct-21 Nov-21 Dec-21 Jan-22 Feb-22 Mar-22 Apr-22
Air India 81.1 78.6 65.6 68.6 59.1 64.8 68.8 63.7 76.0 82.0 78.2 59.2 82.4 83.6 79.5
Air Asia 84.3 84.5 64.1 70.1 54.4 53.6 60.3 68.0 73.7 74.6 74.2 60.5 83.2 81.3 79.6
Vistara 84.2 81.6 67.2 73.2 60.0 69.2 71.3 72.4 75.3 77.0 78.1 61.6 87.1 86.1 82.9
Jet Airways 83.7 76.8 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
SpiceJet 93.0 92.0 75.7 80.4 71.0 74.6 79.6 78.8 82.2 86.7 86.0 73.4 89.1 86.9 85.9
Indigo 88.4 89.1 66.6 75.1 62.7 66.2 74.0 73.6 78 80.5 80.2 66.6 85.2 81.0 79.7
Total Domestic 86.0 86.2 68.6 73.4 62.8 66.5 72.0 72.3 77.2 80.1 79.5 65.4 85.3 82.3 80.6
Source: DGCA, JM Financial; Note: Jet airways includes Jet Lite
Exhibit 6. International passengers carried – monthly Exhibit 7. International market share by PAX carried - monthly (%)
Source: DGCA, JM Financial; ; Note: Tata Grp. Co’s incl. Air India, Air India Express Air Asia and Vistara. Source: DGCA, JM Financial; ; Note: Tata Grp. Co’s incl. Air India, Air India Express Air Asia and Vistara
Data for Apr’22 available post Oct’21 Data for Apr’22 available post Oct’21
JM Financial Institutional Securities Limited Page 2
Aviation 16 June 2022
Exhibit 8. ATF prices continues to remain high
Source: IOCL, JM Financial
Exhibit 9. Indigo – FY24E EBITDAR sensitivity to PAX yield and ATF (INR bn)
PAX Yield (INR)
Crude
3.6 3.7 3.8 3.9 4.0
(USD/bbl)
60.9 65 95.5 104.8 114.0 123.2 132.5
(INR/l)
ATF
65.6 70 85.4 94.6 103.8 113.1 122.3
70.3 75 75.2 84.5 93.7 102.9 112.2
Source: JM Financial
Exhibit 10. Indigo – Target price sensitivity to PAX yield and ATF (INR/share)
PAX Yield (INR)
Crude
3.6 3.7 3.8 3.9 4.0
(USD/bbl)
60.9 65 1,465 1,650 1,835 2,020 2,205
(INR/l)
ATF
65.6 70 1,265 1,450 1,635 1,820 2,005
70.3 75 1,065 1,250 1,435 1,620 1,805
Source: JM Financial
Exhibit 11. Comparative valuation
Companies EV/ EBITDAR P/E ROE
FY22E/ FY23E/ FY24E/ FY22E/ FY23E/ FY24E/ FY22E/ FY23E/ FY24E/
CY21E CY22E CY23E CY21E CY22E CY23E CY21E CY22E CY23E
LOW COST CARRIER
North America
JetBlue 9.8 4.1 3.5 NA 7.7 4.6 NA 9.0 8.3
Southwest 4.7 4.0 3.7 14.3 9.5 7.6 14.2 19.2 24.1
Spirit Airlines 15.6 8.3 6.4 NA 12.2 5.6 NA 8.1 -
Eurasia & ME
Ryanair 6.9 6.3 4.9 NA 8.3 7.3 NA 20.0 21.4
EasyJet 4.5 3.4 3.1 NA 10.3 7.5 2.6 9.8 11.9
India
Spice Jet 38.8 8.0 6.3 NA 17.2 4.4 NA NA NA
Indigo 175.2 8.2 7.4 NA 18.9 14.7 NA NA NA
Average 32.5 5.6 4.7 12.0 7.4
FULL SERVICE CARRIER
Singapore Airlines 5.9 4.6 - NA 21.7 15.6 NA 5.9 9.6
Turkish Airlines 3.8 2.8 - 4.3 4.0 3.3 11.8 9.5 -
Lufthansa 5.2 4.5 3.9 NA 9.1 5.9 NA NA 21.4
Average 5.0 4.0 3.9 NA 11.6 8.3
Source: Bloomberg, JM Financial; Note: Low Cost Carrier average does not include SpiceJet and Indigo, Valuations as of 17/06/2022
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Aviation 16 June 2022
APPENDIX I
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Definition of ratings
Rating Meaning
Buy Total expected returns of more than 10% for large-cap stocks* and REITs and more than 15% for all other stocks, over the next twelve
months. Total expected return includes dividend yields.
Hold Price expected to move in the range of 10% downside to 10% upside from the current market price for large-cap* stocks and REITs and
in the range of 10% downside to 15% upside from the current market price for all other stocks, over the next twelve months.
Sell Price expected to move downwards by more than 10% from the current market price over the next twelve months.
* Large-cap stocks refer to securities with market capitalisation in excess of INR200bn. REIT refers to Real Estate Investment Trusts.
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