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Wednesday, 04 January, 2017, 15 : 15 PM [IST]

Despite good biz, hospitality & aviation stocks fall since November

As per a report in The Hindu Business Line, despite increase of 9.3% and 23% year-on-year in foreign tourist arrivals (FTAs) into India and domestic passenger traffic, respectively, in the month of November, share prices of aviation and hospitality companies have corrected sharply since demonetisation. They have declined in the range of 10-20% compared with 5% fall in Nifty 500 since November 8. Data for December is awaited but analysts are quite confident that it will be robust. According to Mayur Milak, Analyst at Anand Rathi, the industry load factor (capacity utilisation) improved by 460 basis points to 80.2% from 75.6% a month ago, despite recent capacity addition (at the beginning of the strongest quarter).

Despite adding six aircraft to its FY16 fleet size, Spice Jet continued to report PLF of above 90%. Indigo’s PLF came in at 87.3%, up 290 bps m-o-m. Including JetLite, Jet Airways’ PLF was 77.6%, up 430 bps m-o-m. Abhinil Dahiwale, Analyst at Motilal Oswal said increase in PLF has come at the cost of yields as companies cut fares to maintain market share. Besides, crude prices have been rising since September after OPEC decided to cut production and formally did the same in November. ATF price worry Average aviation turbine fuel (ATF) prices were hiked by a steep 7.3% m-o-m in November following a cut of 3.7% in December, and then again hiked by 8.6% in January.

ATF forms around 40% of the operating costs of aviation companies. Brent crude hit an 18-month high on Tuesday at USD 58.37. Better days ahead for hotels since December quarter is the strongest for aviation companies, their financial performance is not expected to come under too much pressure. However, companies will disappoint in the current quarter as the full impact of higher crude prices and hike in ATF prices become fully visible, according to some analysts. Growth in FTA has been 10.4% y-o-y between January and November.

During April-November, the aviation sector registered 23% growth y-o-y in passenger traffic. Yet, occupancy rates for hotels in India have been a concern (subdued) in some large (important) pockets due to a situation of oversupply, according to an analyst at an unlisted brokerage subsidiary of a large private bank. However, things are looking up for the sector as there have been no greenfield expansion for a long time, which augurs well for occupancy rates and average room rents. Comfortable debt position of large players, such as Indian Hotels, EIH, Taj GVK and Hotel Leela (to some extent) coupled with cut in interest rates will help lower losses or boost profitability of respective companies.
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