Tuesday, September 15, 2020

Air traffic recovery slower in India than other parts of Asia, Europe

The recovery in air traffic in India has been slower than in other parts of Asia and Europe.

While traffic in China has almost reached 90 per cent of pre-Covid-19 levels, traffic in Europe is also recovering faster than in India, according to a research report by HSBC.

Ryanair reported a 53 per cent year on year traffic decline in August with a load factor at 73 per cent. Wizz reported a 41 per cent year on year decline in its traffic with a load factor at 70.9 per cent, indicating that the recovery in European domestic market is much better than the recovery in Indian market. On the other side, recovery in air traffic in India has been the slower than in other parts of Asia and even Europe, HSBC noted.

"On the other hand, Interglobe aviation stock is already close to pre-Covid-19 levels and we believe a structurally positive change in the industry is required for the stock to rise further. At the moment we don't foresee this," HSBC said.

It says there are a few headwinds that seem to have been ignored, including a possible change in the industry structure, an imbalance in international demand versus supply, a changing mix of quality of traffic and a softening Indian economy - all of which could prove to be a headwinds for the earnings.
With rising cases of Covid-19 in India, there is a risk of a second wave of lockdowns that could have an impact on demand. Although the drop in oil price is favourable, with only 40 per cent capacity under operation the positive impact for Indigo is limited.
"So the path forward doesn't look so smooth and yet the stock price of Indigo has almost reached near pre-Covid-19 levels," HSBC said.
"At current levels, the stock is expensive as it trades at FY22e EV/EBITDA of around 14.2x which is higher than its historical average of around 8.0x (we are discounting FY21 since the year is extraordinary and is Indigo is likely to be loss making). Given the uncertainty and the potential headwinds, we don't think giving a premium to the historical average is justified," HSBC said.
15/09/20 Free Press Journal

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