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Jet Airways’ woes are someone else’s gains; should you board SpiceJet?

Exit Jet stock, says AK Prabhakar, head of research at IDBI Capital Market Services.

Updated: Apr 18, 2019, 03.46 PM IST
NEW DELHI: On a day when shares of Jet Airways plunged over 30 per cent following the airline’s complete suspension of operations, shares of peer InterGlobe Aviation hit a record high while those of SpiceJet ruled near its peak, making most of Jet’s misery.

Analysts said the outlook is bleak for the Naresh Goyal-founded Jet Airways, which looks like going the Kingfisher way. They advised investors to deboard SpiceJet and InterGlobe Aviation as well, as rising oil prices and a difficult operational environment for the sector could mean these stocks are past their prime.

On Tuesday, shares of Jet plunged 30.28 per cent to hit a low Rs 168. By recent estimates, Jet Airways was making a daily loss of Rs 21 crore and has debt and dues of at least Rs 15,000 crore.

The airline reported a loss of Rs 3,208 crore in the first nine-month of last financial year. Peers InterGlobe Aviation and SpiceJet also reported losses of Rs 433.50 crore and Rs 372.40 crore, respectively, in the first nine months of last financial year.

Shares of InterGlobe Aviation hit a fresh peak of Rs 1,650 in Thursday’s trade, while those of SpiceJet were just shy of its record high of Rs 156.25, rallying 50 per cent over past five days.

Time to deboard airlines
Exit Jet stock, says AK Prabhakar, head of research at IDBI Capital Market Services. “It’s going the Kingfisher way,” he said.

He said aviation is not the place to make money. “SpiceJet and InterGlobe are already at their peaks. The upside looks capped given the tough environment that they are in. Crude prices too are rising, which can be an added concern,” he said.

No one who can bring Jet back into operations, said Yogesh Mehta, Vice-President at Motilal Oswal Financial Services.

It might be late for investors to now board SpiceJet and IndiGo given the rally they have seen of late, Mehta said. He advised investors to put their money somewhere else.

Jet Airways lenders on Thursday said they are reasonably hopeful of a successful bidding process for stake sale. But analysts are less sanguine.

Peers look to grab market share
Peers on their part are adding capacity to fill up the gap created after Jet's departure. SpiceJet on Thursday said it will induct a total of 27 aircrafts in the next two weeks. Reports suggests IndiGo is also inducting new Airbus SE A320neos into its fleet.

"While other airlines will try to lease aircraft and drive up capacity, it may not be enough to fill Jet’s deficit. We note that while Jet had a domestic market-share of 15 per cent pre disruption, its flight share on top-10 city pair routes was much higher at 24 per cent. This disproportionate capacity disruption on typically high yielding metro routes can drive fare prices up further," Kotak Institutional Equities said.

Post Kingfisher’s termination of operations, IndiGo expanded its market share from 29 per cent in FY2013 to 38 per cent in FY2015.

"Assuming eventual full termination of Jet’s operations, IndiGo will definitely see market share increase, particularly since it has aggressive plans of capacity addition. However, we note that other airlines also have significant capacity addition plans. While yields can certainly increase in the near-term, the benefits of the same will be more distributed this time," Kotak said.

In case an airline does not utilise the allocated slot for one month, the allocated slot is cancelled and reallocate to others on an ad hoc basis.

"Overall, there is subjectivity as to when DGCA comes in and takes away slots from Jet – considering state-owned lenders have a large stake in Jet, DGCA may definitely wait out for a final decision on Jet before taking a decision on the slots. It has reallocated some slots to other airlines, however, there is limited clarity on whether these airlines will retain these slots on a permanent basis," Kotak said.

Indian aviation a treacherous graveyard
Earlier on Wednesday, Vijay Mallya tweeted: “Even though we were fierce competitors, my sympathies go out to Naresh and Neeta Goyal who built Jet Airways that India should be extremely proud of. Fine Airline providing vital connectivity and class service. Sad that so many Airlines have bitten the dust in India. Why?”

Mallya’s Kingfisher was grounded in October 2012.

India is emerging as a treacherous graveyard for Indian carriers, said Ajay Bodke, CEO Prabhudas Lilladher.

“Jet's failure follows a raft of other failures in the sector like Kingfisher, Deccan, Sahara etc. It is a reflection not only on the sub-optimal management of the operations by the owners of these carriers but also of the sheer neglect by the aviation mandarins of incessant pleas from the industry to introduce sensible and reasonable taxation & tarriff policies as well as other expenses charged by the airports,” he said.

ET on Thursday reported that the aviation ministry has called a meeting of airlines and airports later in the day to discuss ways to rein in soaring airfares on popular routes.

The meeting, to be chaired by aviation secretary Pradeep Singh Kharola, will look at issues such as “airfares on high density routes and additional deployment of capacity”, the ministry informed airlines and airports on Wednesday.

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