Indian airline stocks soar on SpiceJet profit news

Written by editor

India’s second-biggest budget airline, SpiceJet, posted an unexpected quarterly profit on Monday.

India’s second-biggest budget airline, SpiceJet, posted an unexpected quarterly profit on Monday. That raised hope that India’s struggling aviation sector is turning around and sent airline stocks soaring.

According to Reuters, Indian carriers, reeling under debt of $20 billion, lost a combined $2 billion last year on high fuel and airport charges and below-cost fares. All but IndiGo, India’s top low-fare airline, lost money.

“Coming after five consecutive quarters of losses and making a fairly healthy profit in this quarter shows a turnaround for us,” SpiceJet Chief Executive Neil Mills said in an interview.

SpiceJet shares rose as much as 25 percent, while market leader Jet Airways rose 8.5 percent. Shares of ailing Kingfisher Airlines gained 3.7 percent.

Two of the country’s major airlines, Kingfisher and state-owned Air India, are reducing capacity, which helped other carriers like SpiceJet push up fares.

Kingfisher is struggling to pay off its $1.3 billion debt and is flying just a fourth of its fleet, while Air India is afloat thanks to a $5.8 billion taxpayer bailout.

“I don’t see Kingfisher adding capacity, neither do I see passengers shifting back to Air India, so I think this (profit) is very sustainable in the coming quarters,” said Sharan Lillaney, an aviation analyst with Angel Broking.

Reuters reports that SpiceJet posted a profit of 561.5 million rupees for the quarter ended in June, compared with a loss of 719.6 million rupees a year earlier.

Revenue surged 51 percent to 14.07 billion rupees.

Analysts had expected the carrier to post a loss of 707.5 million rupees for the quarter, according to Thomson Reuters I/B/E/S.

Passenger traffic rose 26 percent in the quarter and average revenue per passenger jumped 24 percent, Mills said.

SpiceJet cautioned in a statement that expensive fuel, mostly due to local taxes, and a weak rupee, combined with high airport charges, continued to hurt the sector.

State taxes of up to 30 percent raise the price of jet fuel, which accounts for about half of an airline’s costs.

“Certainly we see that going forward, it will be more positive, but yes, there are challenges,” Mills said.

“The issues that we raised, particularly around high taxation levels and a weak rupee, are certainly something that will continue to be a challenge for the industry.”

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Editor in chief for eTurboNew is Linda Hohnholz. She is based in the eTN HQ in Honolulu, Hawaii.