IndiGo, SpiceJet shares fly as govt increases passenger cap; airlines still far from breaking even

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September 3, 2020 11:53 AM

The Government of India’s Civil Aviation Ministry increased the allowed passenger capacity to 60% from the 45% it had permitted in June this year.

Private Indian airlines can also be expected to benefit from the air bubble arrangements.Although the capacity has been increased to 60%, analysts say the aviation industry is still far from returning to normalcy.

IndiGo, SpiceJet saw share prices surging over 4% on Thursday morning as investors reacted to the increased capacity for domestic airline carriers to 60%. The Government of India’s Civil Aviation Ministry increased the allowed passenger capacity to 60% from the 45% it had permitted in June this year. Shares of IndiGo jumped to trade at Rs 1,304 per share, up from its closing price of Rs 1,248 on the previous day. SpiceJet, the other private listed carrier was trading at a high of Rs 53.7 per share, after having closed at Rs 50 apiece in the previous day. 

Although the capacity has been increased to 60%, analysts say the aviation industry is still far from returning to normalcy. “Although 60% capacity is better than where they were a few months back, the ramp-up has been slow,” Paarth Gala, Research Analyst at Prabhudas Lilladher told Financial Express online. He added that airlines operated between the capacity of 25%-30% for a long time and have only recently started utilising around 35% capacity. 

While this move is sentimentally positive for Airline companies we believe that demand will remain muted in the near future and is expected to pick up post the festive season and maintain a neutral rating on the sector,” said Jyoti Roy, DVP- Equity Strategist, Angel Broking. After restarting the aviation industry in May, the passenger traffic has been inching higher with each passing week. According to analysts at ICICI Securities, weekly average daily fliers in the week ending August 29 crosses the 1 lakh mark. “These are early trends and should improve going ahead at a rate that would depend upon the trajectory of Covid-19 impact,” ICICI Securities said in a report. The brokerage firm added that the average daily passenger has risen from 64,000 in June to 1 lakh at the end of August and average daily passenger per departure has risen from 90.4 to 99.6. 

The slow ramp-up in the industry that is one of the worst hit by the pandemic has not yet helped the airlines break-even. “The sooner Airlines reach the 60% capacity the better they will be when it comes to managing their costs,” Paarth Gala added. Analysts across the board remain bullish on IndiGo in the sector with its increasing market share and better financial performance. In the first quarter of this fiscal year, IndiGo reported a net loss of Rs 2,844 crore, with cash burn of close to Rs 40 crore per day during the lockdown due to high fixed costs in the sector. 

Year-to-date the share price of IndiGo is still down 4.3% after having surged 50% from its March lows. SpiceJet is still struggling, being down 55% since the beginning of this year. 

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