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“The Perils of Competition: How Airlines Are Struggling to Maintain Profitability”

Competition may cap yield in aviation” means that in the aviation industry, competition could limit the amount of revenue or profit that airlines are able to generate. This could be due to airlines lowering their prices in order to attract more customers, which would decrease the amount of revenue they receive for each ticket sold. Alternatively, airlines may need to increase their costs (such as through investing in new technologies or offering more amenities) in order to remain competitive, which could also limit their overall profitability.

After encountering a number of challenges since the pandemic started, including increasing expenses caused by rising fuel prices and currency depreciation, the Indian aviation sector has been experiencing a strong rebound in recent months. According to monthly figures from the Directorate General of Civil Aviation, domestic airlines carried 12 million passengers in February. This is just 2% below pre-Covid levels (February 2020). The month of February 2020, however, had an additional day because it was a leap year.

This month should see a continuation of the momentum. According to ICICI Securities Ltd., the average daily passengers for the first three weeks of March were 426,000 (about in line with numbers from February 2020), as opposed to 423,000 in February 2023. While average daily departures increased sequentially in March, according to the broking firm, passenger load factors also remained favorable.

Due to this, listed airlines like InterGlobe Aviation Ltd. and SpiceJet Ltd. are probably going to have a successful March quarter. IndiGo, the largest domestic airline in India based on market share, is run by InterGlobe. The December quarter (Q3FY23), which is the strongest for aviation, is projected to have a seasonal impact on yields even though they will still be solid. Price is gauged by yield.

However, due to increasing fuel prices and a weakening currency, IndiGo and SpiceJet are anticipated to complete FY2023 with significant losses in the fiscal first half. However, the gains produced in the December quarter partially offset this. IndiGo and SpiceJet, meanwhile, reported net losses for the nine months that ended in December. 1,233 and 1,520 billion dollars, respectively. Gasoline prices have decreased since their high, which should boost profits in FY24. There are more tailwinds. Demand will increase faster than capacity, supporting yields. In FY24, we expect domestic passenger traffic to increase by 20% year over year to 165 million passengers, according to Sabri Hazarika, analyst at Emkay Global Financial Services Ltd. Added he.

It’s true that recent significant orders by Air India and anticipated capacity increases by other airlines will boost the supply, but these things take time. But in the short term, a supply shortage might help the yield.

Therefore, rising levels of competition should be avoided by stockholders in the aviation industry. More competition will probably put pressure on airline prices. Also, “With the decline in crude oil prices, yields are projected to be substantially softer compared to higher levels witnessed in FY23. Also, with rising mobility, FY23 saw an increase in demand, according to Hazarika. 5.37 in Q3.

Undoubtedly, investor sentiment will be impacted if IndiGo’s market share decreases as a result of intense competition. The market share of IndiGo decreased from about 59% in July to 56% in February. Also, the stock took a significant hit after the sale of IndiGo’s co-promoter share. Rakesh Gangwal made the decision in 2022 to cut his ownership of the airline by almost 37% over a five-year period.

Despite anticipated gains from falling crude oil prices, Indigo’s stock is down 14% from its 52-week high of 2,180 per share last month. Although the company has a strong balance sheet, investors should be aware of fuel price volatility. In India’s rapidly expanding aviation industry, Indigo holds a commanding position as the industry leader. However, this position may see challenges in the medium term as older/new companies add capacity to the commoditized low-cost carrier category, potentially facing profit restrictions, even in the form of lower fuel assistance, according to a report by Jefferies India dated 07/06/2017. 15 March.

Also Read: “Phoenix Mills Shares Rise on Motilal Oswal’s Coverage Report Predicting 54% Upside”


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