High losses, poor infra ground airline stocks

Written by Shaheen Mansuri | Mumbai, Jan 17 | Updated: Jan 18 2008, 05:25am hrs
Aviation stocks continue to languish despite a spate of consolidation and an increase in passenger traffic, and will gain momentum only after a year, believe financial planners and airline operators, too. The reasons for this downtrend in the sector are high prices of aviation turbine fuel (ATF) and inadequate infrastructure, amongst other factors. Three airline companies, budget carrier SpiceJet, Deccan Aviation and Jet Airways are listed on the Bombay Stock Exchange (BSE).

On Thursday, shares of Deccan Aviation closed at Rs 251.45 on the BSE, witnessing a decline of 1.31% compared to previous days close. SpiceJet closed at Rs 89 again a decline of 1.49. Only Jet saw an increase of 3.01% to close at Rs 910.80 over the previous day's close. The Deccan stock is down more than 11% over the month-ago period, SpiceJet gained 33%, Jet Airways lost close to 10% over the month-ago period.

According to Gaurang Shah from Geojit Financial Services, the aviation stocks will perform better probably at the end of fiscal 2008-09. Explaining the reasons for the aviation stocks to gain momentum, he says, Despite the fact that there were mergers and acquisitions in the sector in the last fiscal, the airlines made collective losses of Rs 2,000 crore. The growth in infrastructure at the airports is not at par with the growth in civil aviation. Moreover, landing and parking fees, when compared to other airports worldwide, are quite high. Once the infrastructure is adequate, the airlines will jump into black.

Agreeing with the reasons given by Shah, SpiceJet, chairman and CEO, Siddhanth Sharma told FE, The aviation stocks have not reached their fullest potential due to extremely high fuel prices. Secondly, the infrastructure will also be much better in a year's time from now. The aviation stocks in my view will start performing by the end 2008-09 fiscal.

However, giving a positive outlook on the stock movement in the near future, an official from Deccan Aviation said that due to the present consolidation, airlines will see a steady move towards more acceptable fare levels and revenues. Undoubtedly. the impact of a high ATF price in comparison to the international market is a cause for concern. We expect the government will take steps to provide the necessary relief towards making the aviation industry more viable, said the Deccan official.