IndiGo, SpiceJet shares fall with no immediate relief for sector, reforms could benefit in long run

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Published: May 18, 2020 1:34 PM

Aviation stocks have been stranded on the runway for a long time and with no immediate support coming from the government towards them, SpiceJet and IndiGo were seen tanking as much as 11.3% on the stock market.

Pakistan Civil Aviation Authority (PCAA) extended the ban until Wednesday as part of the government instructions to minimise travelling of the people.With air travel being suspended till at least the end of this month, the industry was expecting to get some support from the government to dodge the recent headwinds.

Aviation stocks have been stranded on the runway for a long time and with no immediate support coming from the government towards them, SpiceJet and IndiGo were seen tanking as much as 11.3% on the stock market. Share price of SpiceJet fell 5% to trade at Rs 43.45 per share while that of IndiGo tanked 11.3% to trade at Rs 882 apiece. The aviation industry has been one of the worst affected with the business under a complete shut down at present and the sector’s near-term performance to be marred by various headwinds as the world prepares for a post-coronavirus world.

With air travel being suspended till at least the end of this month, the industry was expecting to get some support from the government to dodge the recent headwinds. However the government announced three measures for the sector that included — accelerated privatisation of airports, increasing competitiveness of domestic MRO industry, and better optimisation of airspace to reduce travel time and fuel costs. “These steps are long-term positives, which will boost the cost efficiencies of Indian airlines. However, near-term balance sheet issues continue to pose severe challenges to a majority of Indian airlines,” said brokerage and research firm ICICI Securities in a research note. 

The move to boost airspace usage by airlines is likely to bring fuel expenses down. “According to our EPS sensitivity, aircraft fuel savings of even 5% would translate into an EPS change of ~20% for INDIGO,” said brokerage firm Motilal Oswal in a note on the aviation industry. The move will also help the airlines to boost connectivity in Tier-2 and Tier-3 cities of the country. The decision to auction six more airports on the Public-Private-Partnership model is also expected to help the aviation industry in the long run, according to Motilal Oswal. “Currently, India faces huge capacity constraints and congestion at various airports. Long-term growth of airlines depends primarily on the development of airport infrastructure,” the report said.

InterGlobe Enterprises, the parent firm of India’s largest airline by market share, IndiGo is also looking to get a 30% piece of the Australian airspace as it gears up to participate in the sale process of Virgin Australia. The announcement comes after InterGlobe Aviation (Indigo Airlines) denied any interest in the bidding process, said Brokerage and research firm JM Financials. 

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