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AVIATION STOCKS: Extending rally to fresh highs

Domestic aviation stocks are likely to see some buoyancy in the days ahead on lower fuel cost, better fares (thanks to a passenger-friendly GST) and volume growth.


Airline major SpiceJet, IndiGo and Jet Airways will remain in focus after passengers carried by domestic airlines grew by close 18% (Led by IndiGo) to 465.87 lakhs during January-May 2017 as against 396.04 lakhs in the corresponding period of previous year, according to the performance report of the domestic airlines released on Monday.


In May, the passenger load factor (PLF) hit an all-time high of 89% with total monthly domestic passengers crossing the 10 million mark. IndiGo (91%), Go Air (93%) and SpiceJet (94%) all reported strong PLFs, while AirAsia (89%), Vistara (87%) and Jet Airways (85%) improved load factors.


On the supply side, the sector is increasing international capacity, implying lower capacity pressure in the domestic market. The total capacity as measured by available seat kilometre (ASK) during April-May 2017 increased 21% for Indigo, 16% for SpiceJet and 9% for Jet Airways.


The new trend of increasing shares in international segment is evident also in the passenger distribution of airlines. Passenger growth for IndiGo was 27% in April, out of which 26% was for domestic and 67% for international sectors. Comparatively, it was 16% (17% for domestic and 14% for international) for SpiceJet.


Additionally, Low GST on economic class air tickets will further boost growth of low-cost carriers amid falling crude oil prices, which constitute around 40% of an airline’s operating costs.



SPICE JET: Low-cost carrier SpiceJet on Monday said it has signed a MoU with Boeing for 40 737 MAX airplanes. “The agreement, valued at approximately $4.74 billion at current list prices, is split evenly between 20 new orders for the 737 MAX 10 and conversions of 20 of the low-cost carrier’s 737 MAX eight airplanes of its current order to 737 MAX 10s,” the airline said in a statement.



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Sharp rally has been witnessed throughout the previous year with tight consolidation in late 2016′ and early 2017′ while stock prices have surpassed all time high levels towards 127.2% retracement of the decline.


Secondly, IndiGo has been in an early stage of rally and seen at the weekly chart, rally has just begun. Stock after the recent pullback towards intermediate peak levels is trading above 61.8% retracement of the decline. Immediate resistance around 1250 levels will act as resistance, while breaching above will resume the uptrend towards new highs.


Monthly charts of Jet airways shows price have recovered after pullback to breakout of triangular pattern to above 38.2% retracement of the recent decline. Scenario a little bit changed to higher high higher low formation indicates change in trend.