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In today's edition of Moneycontrol Pro Panorama: BJP moves to implement CAA just days ahead of LS polls, most Americans seem to prefer Trump to Biden, TMC decides to take BJP head on, where does India stand economically over Russia, and more
March 12, 2024 / 03:13 PM IST
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Dear Reader,
The Panorama newsletter is sent to Moneycontrol Pro subscribers on market days. It offers easy access to stories published on Moneycontrol Pro and gives a little extra by setting out a context or an event or trend that investors should keep track of.
Aviation is an alluring business. Many enter it, but few make money. And the ones who succeed rake in the moolah. Consider the latest developments in the industry. A stake sale in InterGlobe Aviation fetched its co-founder more money than the entire market value of SpiceJet.
Of course, the sizes of both companies vary hugely. Even then, investors should note the valuation gap. IndiGo commands a higher valuation reflecting its consistent track record and superior operating metrics.
SpiceJet, despite ownership changes, faced financial pressures for a long time. Shares of the company plunged in Tuesday’s trade on reports that two senior executives are exiting the company.
The divergent fortunes send a cautionary message about the sector, which is seeing a steady rise in passenger traffic. According to ICRA, domestic air passenger traffic is estimated to grow by 8-13 percent in FY24 and by a similar level in FY25. However, the industry has high fixed costs.
Supply chain constraints and gradual rise in passenger yields mean the sector continues to lose money, though at lower levels. ICRA estimates peg the aviation industry’s net loss in FY24 and FY25 at Rs 3,000-4,000 crore, lower than Rs 17,000-17,500 crore in FY23. “While some airlines have adequate liquidity and/or financial support from a strong parent, supporting their credit profiles, the credit metrics and liquidity profile of others will remain under stress over the near term,” ICRA said in an update.
IndiGo is estimated to report sizeable profit in FY24 and FY25. In comparison, the most recent analyst estimates project a loss at SpiceJet in FY24.
That said, the industry remains fairly competitive. New companies such as Akasa Air are making their presence felt and also gaining market share.
The Tata Group is consolidating its business in the aviation industry. SpiceJet is seeing much required funds infusion. While the measures can raise competition for IndiGo, the airline is unlikely to cede market leadership in the domestic aviation market any time soon.
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R Sree Ram
Moneycontrol Pro
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