Aviation Q3FY22 Preview: Industry to see better results with Omicron dent; sector’s near-term outlook mute

The aviation sector likely to see relatively better earnings in the third quarter of the financial year 2021-22, however, followed by challenges around Omicron, a new covid variant and industry structure, HSBC Securities and Capital Markets expected in a research report on Friday. 

According to the report, the near-term outlook deteriorates demand that could remain soft, while recovery in the following quarter will depend on virus and as Omicron spreads. The domestic traffic has fallen by over 45 per cent in the last 10 days. 

Similarly, the entry of Tata Group with takeover of Air India, the industry structure is set to fragment which could see the health of the industry deteriorate, as consolidate of aviation business is likely, the brokerage house said listing out the second reason of sector’s worry.  

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Other than Tata, two more airlines are expected to start operations this year: Akasa and Jet Airways. While Jet Airways has not given any concrete timeline and plan, Akasa’s CEO has given some clarity, and expecting the delivery of its first aircraft in April this year, most probably, the report mentioned.  

Amidst the fare war and the challenges that sector sees, HSBC Securities believe, the industry could add 80-85 aircraft this year which could increase the gap between demand and supply, adding pressure on the load factor and yield. 

On the contrary, the brokerage think it is worth highlighting that most of the deliveries at Boeing are running late at current. Hence, in case Boeing delays some of the scheduled deliveries to Indian carriers, the underlying capacity growth could be lower than our expectation, HSBC Securities noted. 

“We forecast an Rs 310 net loss at Indigo and Rs 170 billion loss at Spice Jet; on a sequential basis the numbers should be much better. However, the key issues will be the trading environment and capacity outlook, neither of which looks too optimistic at present,” the brokerage added. 

Talking about the stock price of the two major aviation companies, HSBC Securities have lowered Spice Jet’s target price to Rs 70 per share from Rs 82 apiece, however maintain a Hold rating. While on Indigo, it edges up target to Rs 1,615 from Rs 1,525 per cent; Reduce rating remains unchanged.