Explore the potential of the aviation sector post-COVID, with rising domestic traffic, mega aircraft orders, government schemes, FDI, and market analysis.
Now that covid is behind us, and people are traveling again for work and leisure, civil aviation is a sector that benefits the most. Traditionally, the civil aviation sector caters to the non-military and commercial flying category for a state that is known to have a boom period when people have more money to spend on luxuries and traveling.
Investing in the aviation sector has predominantly been done by larger private entities and the government, however, with the listing of certain companies, retail investors have a chance to be a part of this sector as well.
As per ET Infra article dated 20 February 2023, domestic aviation traffic has seen a 95.72% rise in the month of January 2023 as contrasted with the same period last year with Spice Jet airlines reporting the highest occupancy, followed by Indigo airlines, Air India airlines, and Go First airlines. This trend indicates normalcy is being restored in the sector post the pandemic.[1] It can further be noted that while the highest occupancy was obtained by Spice Jet Airlines, Indigo airlines tops as per market capitalization.
The Big News
As per an article in Economic Times, Air India’s mega aircraft order consisting of 470 planes has brought a lot of positive sentiment to the sector. Further, it has been reported[2] that several other Indian airlines have also placed new aircraft orders which amount to 1,115 planes being added to the Indian aviation industry. With an increase in the middle-class population in India, an increase in demand is likely. The move will help cater to most of the international travel needs of citizens of Indian airlines.
This order has made India one of the most promising countries in terms of the aviation industry.
Budget
Budget allocations indicate the focus of the central government on the different sectors and shed some light on the growth that can be anticipated in the coming year. While the budget estimated for the civil aviation industry was lower than expected,[3] the sector has received a whopping 31.13 billion rupees allocation. The reduction in the expected amount has been attributed to money being kept reserved for holding various assets of Air India.
In her budget speech, Finance Minister Sitharaman mentioned “fifty additional airports, heliports, water aerodromes and advance landing grounds will be revived for improving regional air connectivity,” indicating growth in the sector.
Government Schemes
Under ‘Ude Desh ka Aam Nagrik’ (“UDAN”) scheme, a special budget for improving connectivity in two-tier and three-tier cities has been approved. Funds shall be utilized for the revival of unserved/underserved airports as well as airstrips.[4] This is aimed at making affordable air travel possible in these two and three-tier cities while maintaining the profitability for the airlines.
Foreign Direct Investment
For more serious investors, according to the extant Foreign Direct Investment (FDI) policy, investment can be made in an Indian entity by two routes – automatic route and government route. The automatic route implies the investor does not require any approval from the Government of India for investment. Whereas under government route, prior approval from the Government of India will be required.
Under the extant FDI policy, 100% investment under the automatic route can be made in airports.
For air transport services, the FDI cap for all kinds of air transport services is 100%, only in case of scheduled air transport service, domestic scheduled passenger airline and regional air transport service, FDI under automatic route is permitted up to 49% and is under government route beyond 49% investment.
Therefore, foreign inflow into the sector is welcomed by the government giving more boost to the sector and its progress. A present example of foreign investment is Vistara airlines, which is a joint venture between Tata Sons Private Limited and Singapore Airlines.
Market Watch for technical analysis
Investing in the shares of listed aviation businesses can depend on several factors. Some of the companies to keep a watch are Interglobe Aviation Limited (parent company of Indigo airlines), Spice Jet, Jet Airways, Global Vectra Helicorp Limited.
Considering the share of Interglobe Aviation Limited, which has the largest market share, on the monthly charts, the share price is indicating higher highs and lower lows, marking an upward trend in the months to come.
Further looking at SpiceJet Limited, the monthly candles are not confirming to the Dow theory as the candles are showing lower highs but not lower lows.
Conclusion:
The aviation sector is fast emerging and is worthy of noting its progress in the future. Whether the progress will translate into a rise in the share prices of airline stocks, only time will tell. But the overall growth prospects and encouragement from the central government as well as its capacity for attracting foreign investment is strong.
Researched and Written by CS Renucka Vaiddya -For KAPS Financial Literacy ( by Kedar Nadgonde )
[1] https://infra.economictimes.indiatimes.com/news/aviation/domestic-aviation-traffic-continues-growth-jan-records-1-25-cr-passengers-with-95-72-rise/98092820
[2] https://infra.economictimes.indiatimes.com/news/aviation/air-india-indian-aviation-market-tailwinds-of-growth/98079777
[3] https://www.constructionworld.in/transport-infrastructure/aviation-and-airport-infra/civil-aviation-gets-rs-31.13-bn-allocation-in-union-budget-2023/39075
[4] https://www.lexology.com/library/detail.aspx?g=3036b30e-1d40-476a-ab0d-253755d65322
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