InvestorQ : Is it a good time to buy airline stocks? Can I buy Spice Jet or Indigo?
Anamika Sodhani made post

Is it a good time to buy airline stocks? Can I buy Spice Jet or Indigo?

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K V RAO answered.
2 years ago
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Avoid airlines stocks. The business of airlines is a very high business risk model. Aviation oil, the key raw material sicks as much as 65%. Establishment costs take away another 20%. The residual percentage is the bottom line. Of course, with the grounded Jet Airways, the revenue potential of Indian airlines has spruced up. But that's a negative way of appraising the business potential.

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2 years ago
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You need to look at it differently. Profits for the March quarter were higher but that was more due to problems at Jet Airways and the decision of airline companies to hike fares. Take the case of Spice Jet results. The company reported a profit of Rs.56 crore for the fourth quarter but it still made a loss for the full year of Rs.316 crore because it had made a total loss of Rs.427 crore in the first two quarters of the year. The problems at Jet and the higher fares may not last much longer.

Secondly, remember that global crude prices are still close to $70/bbl and the pressure on ATF prices will continue. Competition will be tough because India is a very price sensitive market and the market will contract rapidly if the prices go too high. That means the airline companies will still have to keep offering attractive discounts to the flyers. This looks more like a temporary kind of an affair and don’t read too much into this. Overall, you must be cautious about airline companies. If you were to make a choice, Indigo could be better than Spice Jet considering its clear leadership position and the bigger balance sheet advantage that it enjoys sustaining fare cuts longer.

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