How the Indian Airline Sector Benefited from Kingfisher's Fall

Friday, 28th December 2012 at 01:50am

The demise of Kingfisher Airlines is a boon to other Indian carriers, such as Jet Airways. Once India's major air carrier, Kingfisher was reduced to being India's smallest carrier, in terms of market share, early this year which eventually leads to its shutdown recently.

The void left by the financially-troubled airline has given way to Jet Airways to strengthen its hold in both domestic and international sectors.

Over the past year, the share of Jet Airways has doubled in value while Kingfisher's share was halved over the same period. Investors in Jet Airways who bought shares last year while the rival Kingfisher Airline was heading to its fall, are now reaping rewards.

While it is true that shares of Jet Airways have skyrocketed in value over a one year period, the airline industry in India, in general, is not at all making profit to speak of. Still, Jet is making losses every quarter but one for the last seven quarters. Its losses, however, have tapered off over the period. Its losses, for example, during the 2nd quarter of fiscal year 2012-13 stood at Rs 100 crore, down from Rs 713 crore over the same period in 2011-12.

The airline industry in India has witnessed its rough times this year following high fuel prices in the world market which remain unchanged, on a year-on-year basis. The misery of the industry was compounded by the weak rupee whose value has diminished by more than 7 percent against the dollar. As if it was not enough, traffic fell by 9.9 percent.

Industry insiders, though, have a rosy outlook of the country's commercial aviation business after the shutdown of Kingfisher Airlines. Many believe that India's airline industry needs consolidation in order to weather financial hardships in the future. Other local airlines, most notably IndiGo and Spice Jet, have witnessed their respective market shares increase and their profits surge after the fall of Kingfisher Airlines.

The troubles that hugged the airline industry in the country have prompted the government to review its aviation law and subsequently amended its provision involving foreign stakes in local airlines. The easing of law on ownership by foreign investors on local airlines has caused the shares of Spice Jet and Jet Airways to soar.

Etihad Airways, the flag carrier of UAE based in Abu Dhabi is reportedly in advance talks with Jet Airways with the latter offering the former for a substantial stakes sale. Rumors have it that the substantial investment of Gulf airline in Jet Airways will double the local airline's valuations from Rs 4,800 crore to an estimated Rs 9,400 crore.

The local aviation industry of India was nearing to being written off from the stock market last year due to widespread troubles affecting all the country's airlines.

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