Aviation stocks take flight as govt ups fare price band; SpiceJet gains 7%

On Thursday, Ministry of Civil Aviation revised air fare price band on flights with 90 to 120 minutes of duration to Rs 3,900, up from Rs 3,500 earlier

Shares of aviation firms InterGlobe Aviation and SpiceJet took off at the bourses on Friday, cheering the government's decision to increase the upper and lower cap on airfare by up to 30 per cent. In the intra-day trade, IndiGo shares jumped up to 4.7 per cent on the BSE to hit an intra-day high of Rs 1,704 apiece while those of SpiceJet soared 7 per cent to a high of Rs 94 per share.

On Thursday, Ministry of Civil Aviation revised fare price band on flights with 90 to 120 minutes of duration to Rs 3,900, up from Rs 3,500 earlier. The cap on maximum chargeable fare has been raised to Rs 13,000 from Rs 10,000.

The decision comes after Civil aviation minister Hardeep Singh Puri recently said that floor and ceiling price on airfares was an extraordinary measure to prevent a tariff war, which could trigger bankruptcies.

"It is not our intention--it also cannot be in an open, deregulated market situation--to have the fare bands as a permanent feature. So, it is our expectation that when flights open up to pre-Covid levels in this summer schedule, we would not have the need for a price band," he said.

Executives of airlines, however, said that though the government had increased the upper and lower price cap on air tickets, it may be difficult for them to hike fares as demand was still uncertain and only limited to a specific routes- primarily in tier 2 and tier 3 routes.

"Fares are lower than they should be at this point and again it is because we are not getting enough of our booking period," Ronojoy Dutta, CEO of IndiGo, had said during the recent post results call with analysts.

Weekly average daily fliers stood at 2.48 lakh in the week ended February 6 compared with 2.42 lakh fliers for the week ended January 30. The count has increased from 38,000 to 2.5 lakh in the first 35 weeks post the resumption of domestic air travel w.e.f. 25th May’20. That said, average number of departures per day increased only marginally to 2,215 in the week ended Feb 6 vis-à-vis 2,211 in the week ended Jan 30, highlights an analysis by ICICI Securities.

However, the cap on airline capacity, currently at 80 per cent of the pre-Covid level, has been extended till March 31. Except for market leader IndiGo, no other airline has been able to deploy even 70 per cent capacity of the year-ago operation. After being shut for almost two months due to the lockdown, domestic flights resumed on May 25.