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Domestic traffic ex-Jet grows 22.5% in October
Domestic passenger (pax) traffic grew 4% in Oct’19. Dominant factor pulling the traffic growth down continues to be the closure of Jet Airways. As such, ex-Jet, traffic growth was 22.5% in Oct’19. Individual airlines also continue to report strong growth with IndiGo at 15%, SpiceJet (SJet) at 45% and GoAir at 32%. With increasing international mix, total traffic growth for IndiGo/SJet will be much higher. Passenger load factor (PLF) improved YoY in Oct’19 for IndiGo (+200 bps), while it declined for SJet (-80bps). This is the third successive monthly improvement in PLF for IndiGo. IndiGo’s market share stands at ~47% while SJet/GoAir was 16%/11%, respectively. Low capacity growth (2% in 6mFY20) will continue to ultimately support domestic fares. As new international routes mature, overall PLFs will improve. Maintain BUY on IndiGo and SJet.
* Passenger growth mirrors low capacity growth largely on the back of grounding of Jet Airways. Jet’s Oct’18 traffic was 14% of Oct’19 total domestic traffic. The grounding of Jet will continue to keep traffic growth muted till Jan’20.
* Domestic PLF improved YoY in Aug’19, Sep’19 and Oct’19 for IndiGo from 82.8/82.7/83.1% in Aug/Sep/Oct’18 to 84.3/86.5/85.1% in Aug/Sep/Oct’19. SJet’s PLF has been marginally lower YoY in Aug/Sep/Oct’19.
* Significant increase in SJet’s passenger growth is likely in Q3FY20 (45% in Oct’19), driven by proper utilisation of the airplanes inducted from Jet.
* Capacity growth is trailing expectation which is positive for the sector. Our scenario analysis indicates maximum ~6-8% capacity growth for FY20. 6mFY20 YTD domestic capacity growth has been just 2%. Depending on MAX induction, capacity growth would be ~20% for FY21/FY22E, but this is expected to sharply decelerate to ~12% by FY25. This assumes complete execution of capacity growth by all the airlines as planned, as of now. Any bankruptcy/closure/accelerated replacement of fleet by any airline will further lower the capacity growth.
* International segment continues to be a huge opportunity but is putting pressure on profitability currently. IndiGo has increased international share to 24% in Sep’19 compared to 14% in Sep’18. Combination of higher share of neos and increased international mix will lead to fuel savings (evident in numbers) for IndiGo. SJet has increased international share to 29% in Sep’19 compared to 23% in Sep’18. Rapid growth has led to lower PLFs in the international segment which has put pressure on profitability in Q2FY20 for IndiGo/SJet. This resulted in Revenue per ASK significantly lagging fare growth.
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