Aviation stocks rise as regular intl flights to resume, but crude a concern

Airlines currently face a challenging time ahead on account of record high ATF prices, which are likely to increase further on the back of Russia-Ukraine conflict, says an analyst

Shares of airline companies InterGlobe Aviation – parent company of the low-cost airline IndiGo, and SpiceJet gained up to 8 per cent on the BSE in Wednesday’s intra-day trade after the government announced resumption of international flights from March 27, 2022. The move is expected to boost international capacity and will help soften airfares, which have been soaring due to increased demand and rise in crude oil prices.

Among the individual stocks, IndiGo surged 8 per cent to Rs 1,722 and SpiceJet 7 per cent to Rs 60.75 in intra-day trade. In comparison, the S&P BSE Sensex was up 0.73 per cent at 53,814. In the past one month, shares of Indigo declined 27 per cent, as compared to near a 8 per cent fall on the benchmark index. The stock of SpiceJet hit a 52-week low at Rs 53.30 on Monday, March 7, 2022.

Scheduled international passenger flights will resume on March 27, two years after a ban was imposed to prevent Covid-19 cases from spreading. The government had banned all international scheduled flights for a week starting March 23, but it stretched to nearly two years in the midst of a raging pandemic. The civil aviation ministry on Tuesday announced the resumption of such flights and an end to air transport bubbles, which replaced regular scheduled flights over the past two years, the Business Standard reported.

Analysts believe IndiGo continues to remain better placed than its peers and is likely to emerge stronger post Covid given superior balance sheet, industry leading cost structure and strong management team. The Street has multiple concerns related to SpiceJet. Say analysts at Edelweiss Research, “Given the delay in 737 MAX deliveries, lack of transparency for investors, transfer of the cargo business, replacement of cheap Boeing planes and a weak balance sheet, we are reducing FY23 estimated operating profit by 3.7 per cent.” The brokerage continues to maintain a hold rating.

However, rising crude oil prices remains a worry for both companies. Say Ashutosh Somani and Heet Vora of JM Financial, “Airlines currently face a challenging time ahead on account of record high aviation turbine fuel prices, which are likely to increase further on the back of geo-political tension between Russia and Ukraine.”