Indian airline passenger traffic, at 3.98 mn for March, represented 23.4% YoY growth, re-affirming our positive view on the sector. Airline seat factors came down for all airlines on account of seasonality. Market share for both Jet (including Jetlite) and SpiceJet largely remained unchanged. The Indian aviation sector clocked its highest annual traffic for FY10, at 46.3mn passengers (+17%
YoY), marginally beating our BofAML FY10 estimate. We expect strong 15% passenger growth for FY11, at 53mn passengers. Strong passenger traffic can partially offset the cost pressure related to rising ATF prices.
With the onset of the holiday season, we expect industry-wide yields to improve by ~10% for the April-June quarter. Legacy carriers like Jet have already indicated their plans to increase fares by 10-15% for the quarter. Higher traffic on a better yield should enable the airlines like Jet Airways and SpiceJet to post profits in the April-June quarter.
Fuel constitutes 35%-40% of the total cost for the airline companies. JetKero prices have already witnessed a ~23% rise. A further jump in crude prices can have an adverse impact on profitability of airline companies.