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IndiGo, SpiceJet shares plunge; coronavirus, poor passenger and airfare growth hit aviation sector

As per rating agency ICRA, the outlook for India's aviation industry remains 'negative' in the wake of coronavirus outbreak.

February 28, 2020 / 06:32 PM IST
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Aviation stocks plunged on February 28, in sync with the broader market sentiment, as concerns over rising cases of coronavirus wiped out the risk appetite of investors.

Shares of InterGlobe Aviation (IndiGo)  and SpiceJet fell up to 5 percent.

The epidemic has made the sky gloomier of aviation players. As per rating agency ICRA, the outlook for India's aviation industry remains "negative" in the wake of viral outbreak.

"The direct impact on travel to and from the coronavirus affected countries, the medium-term impact on the Indian aviation industry would also depend on the economic shock to the global economy," ICRA said in a note on February 27.

The outbreak in China and its spread to Southeast Asian countries and Europe has impacted the air travel to and from these nations.


If the spread continues unchecked, it can have a significant impact on the aviation industry, already struggling with a lacklustre trend in passenger growth and airfares.

ICRA highlighted that foreign airlines have enjoyed a high market share on international routes, with the domestic airlines accounting for less than 40 percent of the total passengers carried on these routes.

"Assuming the same proportion on routes to and from China and other impacted Southeast Asian countries, the Indian aviation industry could see a maximum impact (of 19.5-23.8 percent) on the international passenger traffic growth if there is a complete suspension of flights to and from these countries i.e. nearly 45-55 lakh passengers,” said Kinjal Shah, Vice President, ICRA.

It would be a negative for the Indian aviation industry, already reeling under significant passenger traffic slowdown, with the international traffic growth in the nine months of FY2020 seeing a decline of 8.4 percent, Shah said.

As per brokerage firm JM Financial Research, airlines carried 1.28 crore domestic passengers (PAX) in January 2020, implying a growth of 2.2 percent YoY. The growth fell to low-single digit (3.3 percent YoY) in YTD FY20 against 16 percent YoY growth in YTD FY19.

The brokerage attributed the low growth to Jet Airways’ exit coupled with demand slowdown.

Indigo witnessed domestic PAX growth of 15 percent YoY to 61 lakh in January 2020. SpiceJet witnessed a PAX growth of 27.5 percent YoY to 21 lakh, driven by significant capacity addition. Go Air witnessed domestic PAX growth of 14.6 percent YoY to 12 lakh and smaller airlines like Vistara and Air Asia witnessed a strong PAX growth of 77 percent and 32 percent YoY on a lower base, JM Financial said.

Airfares witnessed a YoY decline in Jan-Feb 2020.

"Average fares for Indigo and SpiceJet have significantly declined by more than 20 percent YoY in Jan-Feb 2020. This will lead to moderation in yields going forward adversely impacting the earnings in Q4FY20," JM Financial said.

Disclaimer: The above report is compiled from information available on public platforms. Moneycontrol advises users to check with certified experts before taking any investment decisions.
Nishant Kumar
first published: Feb 28, 2020 12:10 pm
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