Airlines' shares fall on AirAsia's entry concerns

The Malaysian carrier is known for its aggressive pricing policies

Air carriers Jet Airways and SpiceJet scrip today fell 1.5 per cent and 3.9 per cent, respectively, after the Foreign Investment Promotion Board (FIPB) approved Malaysian budget carrier AirAsia’s proposal to start airline services in India in partnership with the Tata Group and another Indian partner with an initial investment of Rs 80.89 crore.

Analysts attributed the downward movement in share prices to concerns of competitive air ticket pricing after AirAsia’s entry into the Indian market.

The two airlines’ shares fell despite the Airports Authority of India saying it would form a joint venture with local airlines and oil companies to supply jet fuel, which is expected to reduce fuel costs by at least 10 per cent.

AirAsia is known for its aggressive pricing policies such as massive discounts to stimulate sales. While the airline would not enjoy the same cost advantages as it does in Malaysia, its home market, an aggressive pricing strategy could force other airlines to react and lower fares. This could have an impact on airlines which have high debts and weak balance sheets, analysts said.

Also, the airline has announced it will connect Tier-II and -III cities from its base in Chennai. No other Indian airline currently has Chennai as its main hub. SpiceJet currently commands 30 per cent of all capacity from Chennai. Chennai accounts for 20 per cent capacity of IndiGo and Jet Airways. IndiGo has plans to expand into regional routes while Jet Airways and SpiceJet are already flying to Tier-II towns. SpiceJet started its turboprop operations from Hyderabad and has a base in Chennai, too. AirAsia will intensfiy competition in this market, analysts said.

According to brokers, Jet Airways scrip weakened also due to the delay in its deal with Etihad, which is in talks to pick up a stake in the company. The stock has risen sharply of late on hopes the deal would go through.