For many years India’s airline sector was plagued by over-capacity, poor management, uneven taxation and deficient infrastructure.
None of those problems are fully resolved, yet progress is evident and the period of sector-wide losses is over.
For several years the only Indian airline to make a profit was Indigo, but The Airline Analyst data shows that its low-cost carrier (LCC) rivals have improved their operational performance.
Goair, for instance, has been (just) out of the red since 2012, while Spicejet posted net income of $66 million in 2017 and $63 million in 2016 (at constant currency).
Of course, those two carriers are still dwarfed by Indigo, which has revenues almost 2.5 times their combined sales, but they are not so small as to preclude some form of sectoral analysis.
Combined, Indigo, Spicejet and Goair have achieved a positive aggregate Ebit for each of the last three years, despite declining passenger yield over the same period. Aggregate Ebit margin was 6.3% in 2017.
Their combined operating cash flow before working capital changes, meanwhile, has improved from negative $42 million in 2014 to positive $413 million in 2017.
Nonetheless, earnings did decline in 2017 from the previous year, while the three airlines’ return on capital employed fell from 7.1% in 2016 to 3.5% in 2017. Their average over the last five years is 2.4%.
All have ambitious expansion plans, with 744 aircraft on order between them, of which 441 are Indigo’s backlog, according to Airfinance Journal’s Fleet Tracker.
The three carriers’ adjusted net debt grew 21% to $7.7 billion through 2017, at the end of which their adjusted net debt to Ebitdar ratio was 6.4x. This was worse than in 2016 although a considerable improvement from the 11.1x ratio at the end of 2014.
Adjusted net debt to equity was an unhealthy 16.2x in 2017, however, and rising financing spend pushed the three carriers into overall negative cash flow for that year.
Of course, there is huge variation across the three LCCs’ balance sheets, and TAA Financial Ratings reflect this (and other factors).
The best performer is Indigo, which for the last 12 months boasts a 5.9 rating that puts it into joint 15th position in the global table, alongside heavyweights such as Southwest Airlines.
Spicejet and Goair, in contrast, have financial rating scores of 3.2 and 2.9, respectively, which indicate they are in relatively poor financial health.
Operationally, things look better, with the three carriers allying steadily growing passenger numbers to rising load factors. Average passenger load factor among the three peaked at 86.6% in 2017.
Offsetting some of those gains, unfortunately, has been a 16% fall in passenger yield since 2015.
Further drops would be a concern given that Indian carriers have form in savaging themselves with vicious price wars.
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