Air Asia’s possible entry into India’s domestic civil aviation market on Thursday caused selling pressure on SpiceJet and Jet Airways stocks as these airlines along with others are expected to face pricing pressure going ahead, said an analyst. The SpiceJet stock lost the most as the airline is believed to be bearing the maximum brunt as it had already laid out an elaborate regional network in the southern part of India where Air Asia would be concentrating to begin with. Air Asia has said that Chennai would be the base of its domestic airline.
As investors turned negative, SpiceJet shares plunged to close with a loss of 6.55 per cent at Rs.37.80.
Jet Airways, India’s second biggest airline group by market share, also witnessed erosion of its market cap as its stock plunged 4 per cent to close at Rs.559.90 on the Bombay Stock Exchange.
“These shares will correct further. Today the trigger was the Air Asia news. Air Asia’s imminent entry with the Tatas will enhance the price war as they have deep pockets. The delay in the Etihad deal is also affecting the Jet Airways stock,” said Ambareesh Baliga, an independent stock analyst.
The entry of Air Asia may be beneficial for air passengers as it would keep airfares low, but it does not auger well for the financial health of India’s loss-making airlines which recently turned into profit by jacking up airfares following the exit of Kingfisher. On Tuesday, Jet Airways had announced the sale of two million cheap tickets indicating desperation by airlines to fill its seats. Any further pricing pressure on the yield has been viewed as negative.
On the other hand, the Kingfisher Airlines stock gained 4.98 per cent to close at Rs.11.60 on a day when the BSE Sensex plunged 317.39 points (-1.62 per cent) to close at 19325.36. Kingfisher stock has been gaining with the hope that it would be revived shortly despite banks raising a red flag.