JP Morgan grounds aviation stocks

Q: Why are you concerned about the Deccan Aviation stock?

A: We are concerned about the industry as much as the stock. The industry is very crowded where there are no margins. We don't know of anybody making money in the domestic market at all. We don't see the condition improving in the near term, given the rate of cash being destroyed, we are certainly worried about the prospects of some of the carriers.

Deccan has raised through asset sales and other transaction, cash that will help them survive through near term that probably being in next year or so beyond that we remain worried unless some rational behavior in the industry.

Q: Hopes are being raised recently that maybe people are slowly moving or veering away from irrational behavior on the pricing front because prices went up a little bit for the low cost carriers of late. Do you think this industry still has a chance of sorting out those issues and can still move towards profitability?

A: No, we don't think it will move towards profitability in the near term. The airline industry is inherently seasonal. A week ago or so, a couple of major players announced 3-4% fare increases. If I recall, about this time last year, Jet Airways announced more than 10% increase and the stock rallied dramatically and that really didn't count so much in the end.

The notional prices might rise inspite of what the real price is and it's the matter of what the cost is doing in the meantime. I still feel that there is way too much competition and there are still too many people chasing for the lowest price in the market. So in our view and from all the evidence we monitor, there are no signs at all of rational behavior emerging.

Contd on Pg 2...