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MOSL: AVIATION-Downward pressure on fares continues in seasonally weak 4Q-Strong passenger growth, but at the cost of yields

​Aviation: Downward pressure on fares continues in seasonally weak 4Q; Strong passenger growth, but at the cost of yields

• Average fares down YoY/QoQ: Our 1-month forward fare tracker for 11 routes shows a flattish fare trend over a seasonally weak 4Q; average fares declined YoY/QoQ. In our interactions, airlines’ management also suggested that fares have faced downward pressure in January and February 2017. In the seasonally strong 3Q too, there was significant pressure on yields; IndiGo’s yield declined ~16% YoY and SpiceJet’s yield declined ~10% YoY in 3QFY17. We believe the downward pressure on yields continues in 4QFY17.
  
• Strong passenger growth continues, but at the cost of yields: Passenger growth remains strong – up 20% YoY in February after 25% growth in January; 31 consecutive months of double-digit growth. However, we believe the strong domestic passenger growth is stimulated by lower fares, as seen in the air ticket price trend. Increased industry PLF (~83% in 4QFY15 to ~88% in 4QFY17) on a robust ASK growth (21 consecutive months of double-digit growth) has resulted in strong RPK growth (29 consecutive months of double-digit growth).