According to Crisil estimates, there were 6 million passengers that travelled to East Asia in 2019. Further, market leader InterGlobe Aviation-run IndiGo
has 9 per cent of its entire international capacity allocated towards East Asia, of which China accounts for 3 per cent. Air India operates the maximum number of flights to the region.
Given the developments, analysts remain cautious on, both, SpiceJet
due to weak fundamentals and advise investors to avoid the stock. The coronavirus
outbreak, they say, adds to the concerns.
“Each flight cancelled could cause an Indian carrier to miss out on gross revenue of approximately Rs 55-72 lakhs per flight as per CARE Rating’s estimates, which would eventually impact the profitability of these players who are already reeling under intense pressure. Both Indigo SpiceJet
will remain highly volatile until the epidemic stabilises. It is best for investors to avoid both these stocks for now,” says Nirali Shah, a senior research analyst, at Samco Securities.
Fundamentally, she says that Airbus has shut down its final assembly line producing A320 planes in Tianjin due to Coronavirus, which will slow down aircraft delivery to IndiGo. SpiceJet, too, recently inducted two A320 aircraft to its fleet.
At the bourses, both, SpiceJet and IndiGo have underperformed the benchmark S&P BSE Sensex in the past three months. While SpiceJet and IndiGo have declined 19 per cent and 0.6 per cent, respectively, the Sensex has added 2 per cent during the period.
Gagan Dixit, an analyst tracking the sector at Elara Capital further says while IndiGo has been unable to resolve its A320 neo-based engine issues, growth prospects for SpiceJet remain dependent on the return of Boeing 737 Max, which could negatively affect their expansion plans.
“Firstly, the on-going Coronavirus
outbreak coupled with the domestic slowdown has impacted consumer sentiments. However, the recent correction in crude oil prices – 17 per cent in the past month – has worked in favour of SpiceJet and IndiGo. Going forward, while we remain constructive on the growth prospects of the industry, but given its highly cyclical nature, we would recommend avoiding both these stocks for long term investment,” says Ajit Mishra, vice-president for research at Religare Broking.