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High fuel prices, depreciation of rupee to hamper margins in aviation sector

Even as the recovery in the aviation sector has been highly impressive with stable traffic at around 90 per cent of pre-Covid levels, Brokerage firm Prabhdas Lilladhar has said the domestic passenger traffic is likely to decline nearly 8-9 per cent QoQ, led by the seasonal nature of Indian aviation industry.

IANS | New Delhi |

Even as the recovery in the aviation sector has been highly impressive with stable traffic at around 90 per cent of pre-Covid levels, Brokerage firm Prabhdas Lilladhar has said the domestic passenger traffic is likely to decline nearly 8-9 per cent QoQ, led by the seasonal nature of Indian aviation industry.

International passenger traffic has also been on an uptrend, since the resumption of international operations in March 2022. “However, some concerns like high fuel prices and depreciation of Indian Rupees still hover in the industry.

Despite a healthy recovery in passenger traffic, there remains financial pressure on the earnings and liquidity profiles of airlines. In the near-term, entry of LCC – Akasa Air and relaunch of Jet Airways will intensify competition,” it said.

“We believe IndiGo will benefit in the medium to long term from demand recovery along with capacity deployment, network expansions, commodity softening, and better than industry cost structure. However, inflationary cost environment and Rupees depreciation will continue to be a drag on profitability,” it said.

On the leading carrier, it said, “Maintain ‘HOLD’ with a revised target price of Rs 1,985 (8x EV/EBITDAR Sep-24E). IndiGo – We expect a loss of Rs 12 billion led by seasonal pressure, weak INR, and higher fuel costs. We expect ASKMs to largely remain flat QoQ. However, RPKM declined 2 per cent with a load factor of 78 per cent vs 79.6 per cent last quarter. We expect yields to decline by 2.5 per cent to Rs 5.1 per cent.”