The Indian government asks again for states to help airlines

TESTCustomwebLP TESTCustomwebLP
By TESTCustomwebLP TESTCustomwebLP March 18, 2015 22:01

The Indian government asks again for states to help airlines

The Indian government made another formal requested yesterday that state governments reduce value added tax (VAT) on aviation turbine fuel (ATF).

Indian Minister of State for Civil Aviation Mahesh Sharma stated that “[The] Government is concerned over the financial health of all airlines including budget airlines.”

He also confirmed overnight that there will be no state financial assistance for SpiceJet or any other LCC that gets into trouble. ATF remains more than 50% more expensive in Indian than elsewhere in the world primarily because of the sales taxes levied on the same which can be up to 34%. The current Indian central government has asked three times now for states to lower or delete the taxes on ATF, thus far a few states have made slight changes to their taxation of ATF (as reported here) but nothing substantial has come of the requests by central government. The matter may require legislation from central government for progress to be made – if that were ever to happen many Indian airlines would start to look very attractive to investors everywhere. Of course IndiGo is already attractive and its latest announcement that the IPO will go off in early 2015 (see APAC news below) is good news indeed. If you were asked to choose an airline that can survive and prevail in any circumstance and through the harshest of macro-economic and regulatory environments then IndiGo should be top on your list that is for sure.

Meanwhile, the US airline market is all over the media at the moment as the row between airlines intensifies. I have been steering clear of the argument and intend to continue to do so given that all involved airlines, be they in the US or the Middle East, have in some way shape or form received some sort of state assistance be it direct or through legislation – this is one row that could just run and run and run.

JetBlue stock continues to trade up (up 18% year on year at this time). You may recall that we indicated last summer that JetBlue was in a very good position for revenue growth and therefore investment and following on from the very impressive February 2015 traffic results everyone is waiting to see if management can keep the ball rolling as aircraft are fed by the Middle East majors more and more. JetBlue said it expects current quarter revenue per available seat mile (PRASM) to grow 3% to 4%. The airline also said it expects capacity to grow between 9% and 10%, this is down from prior guidance due to the 2014/15 winter storms and obviously the lower capacity growth has helped the shares trade up given that most competitors are running at capacity growth of around 3-4% at the moment. Some investors have pointed to the high capacity growth numbers as being a reason for caution when considering investing in the airline. They are now starting to change their minds as JetBlue looks to be winning several key transcontinental competitive battles in part via its Mint premium product.

If you had invested in JBLU in April 2014 when we took an in depth look at the airline going forward then you would be 18% up right now (overall the AE share tip portfolio remains up 182% since the start in January 2010). Virgin America on the other hand is starting to come under some pressure, its shares remain 10.4% up from the late 2014 IPO price but it is worth keeping an eye on Virgin America results for this period as it is starting to look like the airline is falling behind rivals on revenue growth.

TESTCustomwebLP TESTCustomwebLP
By TESTCustomwebLP TESTCustomwebLP March 18, 2015 22:01