IndiGo To Gain From Jet Airways’ Financial Woes, Says Morgan Stanley  

InterGlobe Aviation Ltd., the parent of IndiGo, is expected to benefit if the financial pressure continues on India’s second-largest airline Jet Airways Ltd., according to Morgan Stanley.

Jet Airways has been in news amid concerns over its financial health, proposed salary cuts for employees and a delay in releasing June-quarter earnings. Intensified financial pressure on the Naresh Goyal-promoted carrier in the second half of the year through March 2019 would slow down capacity addition, Morgan Stanley said, adding that it would not only improve the utilisation levels but also ticket prices for the industry.

Fuel prices, that account for more than a third of a carrier’s operational costs, have increased but ticket prices have been falling because of competition in the world’s fourth-largest aviation market. A slower capacity addition would improve airfares, helping the nation’s largest airline IndiGo, Morgan Stanley said.

IndiGo faced engine issues that led to grounding of some aircraft. Yet, the airline has been able to add more aircraft on short-term leases. The company added 34 planes in the last one year, of which it bought only nine ATRs.

The aviation industry has added on an average 18 percent capacity in 2018, according to DGCA. The growth could slow down to 10 percent for the ongoing financial year and 8 percent in the one that follows if financial pressure continues, Morgan Stanley said.

Shares of Jet Airways have fallen more than 66 percent this year, the most among the three listed Indian airlines. SpiceJet Ltd. is down over 38 percent and Interglobe Aviation has fallen about 13 percent.

HSBC had slashed the target price on Jet Airways to Rs 150, the lowest in the street, citing a “very tight” liquidity position and a “highly stretched” balance sheet. Yet, seven of eight analysts tracked by Bloomberg have a higher target price. Brokerages had also lowered Interglobe’s price target by up to 22 percent after its profit declined 97 percent in the quarter ended June due to higher fuel costs, adverse forex movement and lower yields.