>AIRLINES - INDIA (MERRILL LYNCH)

■ Strong traffic growth despite fog
Indian airline passenger traffic came in at 4.1 mn passengers for the month of Jan’2010 showing a strong 22.6% YoY growth broadly in line with our view. We expect Industry to show ~15% growth for FY10. Industry traffic witnessed a sequential decline of 9% in Jan’10 on account of (a) seasonality with December being the peak holiday season, and (b) cancellations due to poor weather conditions prevalent in the northern India. Seat factors for most airlines also showed a sequential decline for the same reason.

Strong traffic growth yet again

■ Jet’s loss of market share due to poor weather conditions
Jet along with JetLite was the most affected airline due to the poor weather conditions. JetLite had the highest cancellation rate of 12.6% followed by Jet at 9.2%. This has resulted in loss of market-share for Jet (including JetLite) by 1%. However, despite this one-time loss of traffic Jet Airways will be able to achieve our estimated 8.3mn passengers for FY10 showing a modest growth of ~5%.

■ Demand supply growth rates remain favorable
In January’10, supply (ASKMs) increased by ~7% YoY while demand (RPKMs) increased by ~25% YoY. With most carriers maintaining fleet over next 12 mths, improving demand trends will continue to keep the demand-supply gap favorable. This strong demand has enabled the carriers to maintain good yields even after the peak holiday season as pricing power has returned to the carriers.

■ February expected to be strong as well
Seasonally February is a weak month for the airline traffic. However, based on our interactions with the management of the carriers on the demand situation, we expect February to be strong as well. This coupled with the current softening of crude prices would enable the industry including Jet Airways to post strong numbers for the month of February as well.

To read the full report: AIRLINES - INDIA