Wadia Group-owned Go First Airways’ (Go First) insolvency plea could trigger a 'momentum rally' in shares of rival airlines, Interglobe Aviation (parent company of IndiGo) and SpiceJet, as they look to gain bankrupt airline's market share, said analysts.
On the bourses, shares of InterGlobe Aviation hit a 52-week high of Rs 2,235.95, surging 8 per cent on the BSE in Wednesday’s intra-day trade, before settling 4.5 per cent higher at Rs 2,164 apiece.
Those of SpiceJet and Jet Airways, meanwhile, rallied up to 6 per cent in the intra-day trade, and ended 1 per cent and 5 per cent higher, respectively, following the development, which was announced post market hours on Tuesday.
By comparison, the benchmark S&P BSE Sensex dipped 0.26 per cent.
The surprise bankruptcy filing by Go First, analysts said, will likely lead to supply constraints in terms of total seats on offer across airlines amid overall strong air traffic trends, which will not only drive airfares, but also top-line and margins for the companies in this sector.
Domestic airlines flew 13 million passengers in March 2023, up 21.4 per cent year-on-year.
Between January-March 2023, domestic airlines carried 37.50 million passengers as opposed to 24.72 million passengers during the same period last year.
Prateek Kumar, an analyst tracking the sector at Jefferies suggests in a note that as the revival path is not clear yet for Go First, the market disruption caused by the shutdown of operations is likely to have a bearing on the sector's competitive intensity, and could also impact air fares, especially amid the recent strong traffic trends seen in the Indian aviation sector.
Further, if the suspension is prolonged, other airlines that are adding capacity would look to avail the slots vacated by Go First, especially in the much constrained key metros, and grab on to the market share, he added.
Go First, which commanded a market share of 6.9 per cent as of March 2023, filed for insolvency on Tuesday, saying it could no longer continue to meet financial obligations.
The airline, reports suggest, has total financial obligations worth Rs 11,463 crore towards banks, financial institutions, vendors, and aircraft lessors. Of this, exposure of financial creditors stands at Rs 6,521 crore.
"The sudden supply crunch, with Go First being grounded, will benefit existing players as the development has come at a time when airfares are rising with a load factor of 80-90 per cent on an average.
"Other airlines will make money as airfares will rise due to capacity constraints," said Jinesh Joshi, research analyst, Prabhudas Lilladher.
Apart from IndiGo, Tata group-owned Air India, could be the second key beneficiary given its strong fleet and balance-sheet strength.
However, SpiceJet, analysts said, is yet to gain financial muscle to reap the benefits from the situation.
Meanwhile, SpiceJet, on Wednesday, announced mobilising plans to revive 25 grounded aircraft.
Funds for the revival, the airline said, will be drawn from the government’s Emergency Credit Line Guarantee Scheme (ECLGS) and better cash accruals.
It has already mobilised around Rs 400 crore towards getting its grounded fleet back in the air.
With the development still unfolding, analysts believe short-term traders could scalp immediate gains, while long-term investors could continue to hold on to the stocks.
Mayuresh Joshi, head of equity research at William O'Neil India, for instance, sees aviation stocks as 'momentum plays' given the development and prefers IndiGo among the lot.
"IndiGo, along with Air India, could gain market share, capitalising on low crude oil prices. However, what the government does, in terms of price capping and/or support to Go First, remains to be seen. IndiGo, in this backdrop, remains the preferred momentum pick," he said.
Gaurang Shah, senior vice president at Geojit Financial Services, too, is bullish on IndiGo from a long-term perspective given its market leadership and a strong balance-sheet.
Disclaimer: This article is meant for information purposes only. This article and information do not constitute a distribution, an endorsement, an investment advice, an offer to buy or sell or the solicitation of an offer to buy or sell any securities/schemes or any other financial products/investment products mentioned in this article to influence the opinion or behaviour of the investors/recipients.
Any use of the information/any investment and investment related decisions of the investors/recipients are at their sole discretion and risk. Any advice herein is made on a general basis and does not take into account the specific investment objectives of the specific person or group of persons. Opinions expressed herein are subject to change without notice.