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WEEKLY MARKET SYNOPSIS
Indian Aviation Sector – Another Airline Crash
Last month, my friend’s trip to Ladakh got cancelled, reason? Her flight was cancelled. On June 2, GoFirst declared bankruptcy and suspended all its flights for weeks. There’s a popular saying that goes If you want to become a millionaire from a billionaire, invest in aviation. This week in news, we are discussing the Indian Aviation Sector, its Maydays, smooth landings and what’s happening here.
After the fall of Kingfisher Airlines, Jet Airways Air and Air India, has come the bankruptcy of GoFirst, we’ll delve into its facts, but first, let’s understand the Indian Aviation Sector.
What’s been up with the Indian Aviation industry?
The Indian aviation sector currently accounts for 69% of South Asian air traffic. As of May 2023, three major airlines have declared bankruptcy causing major turbulence in the sector. With over ten airlines operating, the sector struggles facing high competition having too many players. Yet, there is one company, IndiGo that has successfully established its monopoly occupying over half of the sector. Here is the market share allocation of airlines:
Indian airlines carried over 200 million passengers by the end of March 23 and India is expected to become the third largest Aviation market globally by 2024 but the question is, if the Indian market has this potential, why do Indian airlines keep failing? For starters, let’s look at GoFirst.
The Mayday for GoFirst
On May 2, GoFirst abruptly announced bankruptcy, suspending all its flights for two weeks. This came in as a huge shock as the country’s fourth largest airline crashed shaking the whole aviation sector. GoFirst was profitable until 2020, but then it started grounding its aircrafts in due to unavailability of spare parts. The company blamed its fall on failing engines by Pratt & Whitney which has been impacting other airlines too including IndiGo. Over the last three years, GoFirst got emergency funding from the government and 32 billion rupees by the Wadia group. Having suspended all its flights till June 14, GoFirst has sought a funding of 400 Cr from the government trying to hop back on track. For me, the revival doesn’t seem to be happening anytime soon, what are your thoughts?
Major Airline Failures – The Past
GoFirst has followed the bankruptcies of the very famous Kingfisher Airlines in 2012 owned by Vijay Mallya and the fall of Jet Airways in 2019 which still hasn’t been able to resume its operations after four years. The government owned Air India also collapsed in 2022 owing to its huge debt and is now privately owned by the TATA group.
What’s ahead now? The Monopoly of IndiGo
With the fall of several airlines over the years, IndiGo continued to grow making use of these opportunities and now has a monopoly in Indian Aviation with almost 60% market share. Keeping its services affordable for the average domestic Indian passenger, it recorded a net profit of 2654 Cr in FY22.
With more space in the market now, new players like Akasa Air started in 2021 focussing on providing low cost flights and upcoming Fly91 aiming to improve connectivity in tier 2 and tier 3 towns are coming into the picture.
I am looking forward to seeing who will grab the opportunity to fill the space of 8% market share opened up. I think the upcoming and new airlines can benefit greatly from this. What are your projections?
Important Economic Events
| EVENT | DATE | SIGNIFICANCE |
Federal Interest Rate Decision | June 14 | FOMC members vote on where to set the target interest rate. Traders watch interest rate changes closely as relative short term interest rates are a primary factor in currency valuation. |
European Central Bank Press Conference | June 15 | The press conference examines the factors which affected the ECB’s interest rate decision and deals with the overall economic outlook and inflation. It provides clues regarding future monetary policy. |
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Green Portfolio is a SEBI Registered (SEBI Registration No. INH100008513) Research Analyst Firm. The research and reports express our opinions which we have based upon generally available public information, field research, inferences and deductions through are due diligence and analytical process. To the best our ability and belief, all information contained here is accurate and reliable, and has been obtained from public sources we believe to be accurate and reliable. We make no representation, express or implied, as to the accuracy, timeliness, or completeness of any such information or with regard to the results obtained from its use. This report does not represent an investment advice or a recommendation or a solicitation to buy any securities.
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