The home air journey business has grown at round 20% since mid-CY2014. However, this coincided with a major enhance in provide; therefore, pricing was below stress. Just when the pricing situation appeared to stabilise, the federal government’s demonetisation transfer has come as a bolt from the blue. The proportion of money cost for air tickets is low. Nevertheless, the detrimental wealth impact and the resultant fall in client sentiment would have an effect on gross sales, particularly given the discretionary nature of air journey. We minimize our FY18 business volume growth assumption by 3-4ppt.
Lower demand will damage load issue and pricing, provided that plane deliveries (therefore, capability) are largely tied up. We minimize our EPS estimates for Interglobe (Indigo) by 6-11% and for Jet Airways by 13-20%. The home airline business is lastly seeing some stability in pricing. Our airfare index just lately turned optimistic y-o-y after declining for 4 consecutive quarters. Part of this has to do with the truth that low crude value is now within the base; crude is now larger y-o-y. Load components are holding up in 3Q — this being a seasonally robust quarter for home journey.
Demonetisation will have an effect on home journey (particularly, home tourism) within the close to time period attributable to constraints of money availability. It can also damage inbound stream of overseas vacationers within the peak season (Nov-Dec).