Wings to Jhujhunwala’s dream project might lead to a crash landing for the existing listed and ailing players like
(Indigo) and as both the counters are hovering around their 52-week lows.
Indigo is the largest airline in India, with a market share of 55.5 per cent as of January 2022.
Shares of Indigo have retreated 32 per cent from their 52-week high, whereas SpiceJet has plunged as much as 55 per cent from their latest peak.
Brokerage firm
has a reiterated a ‘sell’ rating on Indigo on the back of increasing competitive intensity in the airlines industry; margin pressure given surge in ATF prices and rupee depreciation and decision of Rakesh Gangwal to reduce his 36.6 per cent stake in the company over the next 5 years which is likely to cap stock performance.
On the other hand, Elara Capital has a ‘buy’ rating on Interglobe Aviation but has reduced its target price of Rs 2,527 on the back of higher fuel cost, signaling a 50 per cent upside from its previous close.
“We remain positive, given the company’s strong balance sheet, market leadership that would help to capture most domestic demand growth, strong GDP growth support and ramp-up of high margin international travel,” it added.
The RJ-backed new entrant is likely to take off its first flight by the end of July 2022, as stated by Vinay Dubey, CEO, Akasa Air. Bookings might open in the first week of July.
Dubey has made his intentions clear that Akasa Air will have extremely affordable fares with top notch customer services, despite the costing and near-term challenges. “Aviation industry around the world is very competitive,” he said.
Despite the upsurge in the unlock theme, inducing domestic and global travels, market analysts are concerned over the soaring fuel prices, depreciating currency and increased competition as the headwinds to challenge the aviation recovery.
JM Financial said that the aggregate market share of Tata group’s airlines stood over 22 per cent in April 2022 and the recent acquisition of Air Asia by Air India is likely to provide greater synergies and higher competitiveness. “Competitive intensity in the sector is expected to intensify with the addition of Akasa Air and
,” it added.
With ATF prices hitting all time high, the profitability of airlines will be impacted, said JM Financial. “Airlines may be required to take further hikes to offset the surge in ATF price, possibly reaching a point of demand elasticity in the travel industry.”
The air travel across the world has eased down significantly, thanks to lifting up of the majority of the travel restrictions after two years of pandemic. The Indian aviation sector has to cope up with rising demand at domestic and international levels.
It is not only leisure or holiday travel that has resumed. Reopening of offices has induced business travel as people are coming out of the zoom calls and hosting the events and meetings in person across the globe.
Another domestic brokerage firm,
said that the average daily fliers stood at 3.75 lakh for till-date in June 2022 as against 3.68 lakh for the month of May 2022.
“The average number of daily departures remained flat at 2,821, up 2 per cent MoM, and the number of fliers per departure remained flat at 133, indicating steady PLFs,” it added.
ICICI Securities said that yields will be tested in Q2FY23 against seasonally weak periods and some improving capacity. “Indigo expects to clock 55-60 per cent YoY growth in average seat kilometer (ASK) in FY23.”
A number of Airlines will be looking to add more staff and aircraft to their fleet to cater the rising demand in the industry. This in-turn will add to their expenses and EBITDA margins in the near term.
Not only this, Jet Airways – the grounded airlines for more than three years – is looking for its revival by September 2022, adding to the competition in the industry. The Jalan-Kalrock consortium backed company has received the operational licence from DGCA.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)
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