The Hindu Business Line : Aviation stocks nosedive

The stock prices of the three-listed airline companies posted its new 52-week lows on Wednesday, despite the markets jumping more than 700 points. SpiceJet touched an intra-day low of Rs 20.5, Deccan Aviation hit a low of Rs 54 and Jet Airways touched an all-time low of Rs 308.

Investor interest is rather subdued towards the aviation stocks, say brokers. Spicejet was up by 45 paisa, Deccan Aviation was up Rs 4.3, while Jet Airways plunged almost nine per cent or Rs 33.9 from its previous close at Rs 347.55 on Wednesday.

Further rise in prices

Airfares are likely to increase further as the state-run oil firms have decided to increase the Aviation Turbine Fuel (ATF) prices by another Rs 2,500/3,000 a kilolitre from July 1. “A further increase in ATF prices would only hurt the profits of the already dwindling airline industry. Companies have reported losses in the last quarter due to the rise in fuel prices. The only way the companies can combat a rise in fuel prices is to pass it on to the consumers, this has in turn led to a drop in sales of tickets,” said the head of research at a brokerage.

The accumulated losses for the nine-month period ending March 31, 2008, of Deccan Aviation have increased 161 per cent to Rs 643 crore. Jet Airways India on Tuesday announced a net loss after tax of Rs 221.18 crore for the fourth quarter ended March 31, 2008. Spicejet has reported a loss of Rs 133.5 crore for the financial year ending March 2008 up from Rs 72 crore reported in the previous year, mainly on account of the sharp increase in the price of aviation turbine fuel.

As it seems highly unlikely for fuel prices to head South any time soon, the outlook for the sector seem very bleak, say marketmen. In the past one month, these scrips have shed between 28 and 45 per cent. In the last week alone, Jet Airways has dipped 36 per cent, SpiceJet (22.34 per cent) and Deccan Aviation has dropped 22.49 per cent.

Soaring oil prices have prompted Indian carriers to raise fares and trim routes in an attempt to reduce diminishing margins, said Mr Hitesh Agrawal, Head of Research at Angel Broking. Kingfisher, Air India, Deccan Aviation, Jet Airways and SpiceJet have suspended operations to various destinations.

Cheaper transportation

Mr Agrawal said the airlines, due to the rise in ticket prices, have been loosing their market share to other cheaper modes of transportation like railways.

Many broking firms have revised their ratings for the airline sector, due to the various negative factors surrounding the industry. Prabhudas Lilladher in a research report stated that if the current trend continues in the airline industry, it on the whole, will suffer losses to the tune of $2 billion in FY-09. Rising fuel prices have led to the broking house to downgrade Jet Airways to a ‘market performer’ and they expect the company’s losses to widen to Rs 860 crore in FY-09.

An Enam Securities research report stated that industry-wide seat capacity induction has started to slowdown.

Related Stories:
Airline stocks fall under fears of another hike in ATF prices
Fuel price spiral may squeeze airlines

More Stories on : Airlines | Stocks | Jet Airways (India) Ltd

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