What should investors do with airline stocks?
With the world getting out of Covid-19 grip and the reopening of tourist places, the domestic and international airline industry has seen growing air traffic volumes over the past few years.
India welcomed 4,10,000 passengers daily in 2019 before Covid-19 struck but that has reached new highs of 4,56,000 passengers in recent months. Interestingly, India’s aviation sector has become the third-largest domestic aviation market in the world in terms of handling domestic traffic.
Here are some of the key points that the Indian aviation industry holds:
A rising working group and robust economy is expected to boost demand for air travel. Strong support from the government by lowering the custom duty on air components from 2.50% to 0%, along with up to 49% foreign investments makes this sector a must-watch in the investment world. However, with strong opportunities come bigger threats.
The airline operating margins are quite sensitive to jet aviation fuel prices. The recent volatility in fuel prices is likely a cause of concern for the aviation industry. However, the recent fall in crude price can have a positive impact in the upcoming quarter. Also, an economic slowdown amid globally rising interest rates can be a problem for air travel demand. The nature of business is asset-heavy and thus, airliners need to use their resources effectively. Interestingly, Indian airline companies are expected to withstand such pressures.
So, the question remains, what should investors do with airline companies?
Airline stocks have immense potential in upcoming years to provide handsome returns to their shareholders. It is important to pick up fundamentally good quality stocks for long-term investments. The two airline stocks on the exchanges namely, Interglobe Aviation and SpiceJet are quite popular amongst investors.
These stocks have corrected significantly from their highs and are available at attractive valuations. From their 52-week high levels, these stocks have corrected between 15-50%.
Interestingly, their revenues have jumped between 27-75% in the last fiscal year and management expects the robust growth to continue. Keeping this in mind, the airliners are interesting bets to add to your portfolio!
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