Airline margins set for take-off as supply shock pushes up fares

Firmer fares and strong passenger-traffic growth are estimated to propel the earnings before Interest, tax, depreciation, amortisation and lease rentals (EBITDAR) margin of India’s low-cost carriers (LCCs) to 24-25% this fiscal, compared with 15-16% in the last.

Fares are expected to rise because of limited capacity additions in the industry since Jet Airways ran aground.

With the improvement in EBITDAR margin, the LCCs’ operating cash flows are expected to touch a decadal high of Rs 4,700-5,200 crore this fiscal.

The LCCs are expected to post a strong double-digit growth of 25-30% on-year in domestic passenger traffic, led by robust expansion of domestic capacity by SpiceJet and Indigo. However, non-revival of Jet Airways would curb growth at the industry level.