One man’s loss is another man’s gain, goes the old proverb, which holds true in the Indian aviation space.
Kingfisher Airlines cancelled 48 flights, which the company claimed has been on account of a ‘sudden attachment’ of airline’s bank accounts by income tax department. Fallen in a debt trap, the company’s liquidity has been squeezed out which has resulted in the company not paying its employees, its taxes and other statutory dues. The list of entities it owes money to is never ending.
Jet Airways is trading nearly 6 percent higher at Rs 348 . AFP
Even if the company is bailed out, which looks unlikely, given the current statements from the aviation ministry, it is unlikely that the airline will be able to stand on its feet, especially as it is running out of aircraft with its lenders calling back their planes. Further, the company’s cost structure and the current pricing scenario in the market will make it extremely difficult for the airline to survive.
The company’s competitors have, however, jumped on the opportunity. Kingfisher accounted for 19 percent of domestic capacity. The immediate fallout was visible on the same day Kingfisher cancelled it flights suddenly. Flight rates shot up between 10 and 30 percent, thus benefiting every player in the market other than Kingfisher. Occupancy rates of airlines have improved substantially, as per initial reports.
Little wonder then that Jet Airways is trading nearly 6 percent higher at Rs 348 and SpiceJet has gained 7 percent at Rs 26.30 at the cost of Kingfisher, which is trading 10 percent lower at Rs 24.
With nearly a fifth of the supply out of the market, chance of survival of other airlines have improved substantially. A level-headed approach would be to sacrifice one for the sake of others.
