The fall of Kingfisher Airlines has benefitted Jet Airways. Kingfisher Airlines, which was once India’s leading Airlines in terms of market share has shut down operations due to lack of funds while Jet Airways is going strong on domestic and international sectors. Jet Airways share price has doubled over the last one year while Kingfisher Airlines share price has halved in the same period. Investors who had bought Jet Airways when Kingfisher was looking to go down in 2011 have reaped handsome gains. Table 1 shows Kingfisher’s fall and Jet’s rise.
The reason for Jet Airways doubling in value over the last one year is not due to the change in fortunes of the Airline industry in India. Jet has consistently made losses every quarter except for one quarter, the first quarter of 2012-13 for the last seven quarters. Losses however have fallen sharply over the last one year, with Jet’s second quarter 2012 loss at Rs 1000 million against a loss of Rs 7130 million seen in the second quarter of 2011-12. Airlines industry in India is affected by high fuel prices with oil prices staying unchanged at higher levels on a year on year basis as of November 2012 and a weakening Rupee, which has fallen has fallen by over 7% on a year on year basis. The Airline industry is also witnessing falling traffic with traffic down 9.9% on a year of year basis as of September 2012.
The outlook for Indian aviation sector has definitely improved post the fall of Kingfisher Airlines. The reason is that an industry that saw inherent weakness due to various factors including poor government policies and due to the bailout of the ailing Air India by the government required consolidation. That consolidation was provided by Kingfisher Airlines as it brought its operations to a stand still. The fall of Kingfisher Airlines helped other airlines including Indigo and Spice Jet to gain market share and work more profitable routes. The fall of Kingfisher Airlines also forced the government to open the sector to FDI, and this opening is one of the primary reasons for the share prices of Jet Airways and Spice Jet, the two listed airline companies to gain smartly over the last one year.
Jet Airways is in advanced talks with the Kuwaiti Airlines, Etihad, for a stake sale. The rumours going round is that Etihad could value the company at Rs 9400 crores, which is almost twice the current market capitalization of Rs 4800 crores. If the rumours are true, the sharp rise in valuations of Jet reflects the change in fortunes of the Airline industry in India. The market had almost written off the industry last year when it took down valuations of all Airline companies on the back of many worries including profitability and debt.
Kingfisher Airlines loss is the Airline industry gain. Spice Jet, the other listed airline stock has seen its share price almost double over the last one year on the back of improved market share and on the back of stake sale talks. Indigo, if it lists now will also get good valuations given its leadership status on the industry. Kingfisher’s promoter Vijay Mallya will be regretting his misfortune but his misfortune has become the fortune for other airlines. It is regrettable to see a high flyer fall from grace but as that fall is helping the industry as a whole it is seen as the best thing that happened to the Airline industry.