Q4 results season: The two factors that may aid airlines' revenue but rupee may play spoilsport

Airline operators are set to repeat stellar quarterly results for a second straight quarter, owing to robust numbers for the quarter ended March 2023. Factors such as healthy air traffic and lower prices of aviation turbine fuel (ATF) — or jet fuel — are likely to have driven profitability for airlines in the final three months of the financial year 2022-23, say analysts. InterGlobe Aviation, the operator of airline IndiGo, and SpiceJet are yet to report their financial results for the three-month period. 

Investors keenly await the financial results from the aviation space as the India Inc earnings season gathers steam. The quarterly numbers from airline operators are due at a time when the industry has staged a receiver from the depths of the pandemic with gradual growth in passenger traffic.

However, some analysts warn that further weakness in the rupee can be a key challenge for the aviation industry. The rupee finished at 81.84 against the US dollar on Thursday, within 1.5 per cent of an all-time low hit in October last year.  

Here's what analysts expect from the upcoming quarterly numbers from the commercial aviation space:    

Lower jet fuel cost 

Aviation companies are expected to witness 65 per cent year-on-year (YoY) growth in revenue, mainly boosted by lower fuel costs, according to Mitul Shah, Research Analyst at Reliance Securities. Fuel accounts for the lion's share in airlines' operating costs.  

Shah estimates the aggregate EBITDAR (earnings before interest, taxes, depreciation, amortization, and restructuring or rent costs) margin for airlines to improve by 2,288 basis points on a year-onn-year basis to 22.3 per cent. EBITDAR is a key metric that determines a company's ability to generate operating cash in a given period.

Rising number of flyers 

Analysts say the current trend of reducing airfares may help airlines attract more passengers and, in turn, aid their revenue.   

Available seat kilometres (ASK) are likely to grow marginally across airlines on a quarter-on-quarter basis, according to Heet Vora of JM Financial. ASK is a key measure of an airline's capacity to carry passengers and generate money. 

Vora, however, added that airline may witness a marginal decline in yields on a sequential basis owing to a strong seasonal base, despite buoyant demand. Yield determines the amount of money generated per seat of its full capacity. The analyst also said that more favourable jet fuel rates and forex stability may aid airlines' profitability in Q4.

Recovery in business travel, pick up in international travel and better cargo volumes have been increasing aviation revenue, said Shah of Reliance Securities.

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