Summary: Aviation watchdog Directorate General of Civil Aviation has reportedly launched a probe into flight delays faced by budget carrier IndiGo last Saturday. More than half of its flights ran behind schedule. Following the development, shares of the airline fell 4% intra-day as investors sensed a possible staff crunch. And IndiGo may not be alone. Three new players – Air India under its new management, Rakesh Jhunjhunwala’s Akasa Air and Jet Airways – are vying for pilots and cabin crew staff. This comes at a time when the incumbent players were trying to gain ground post the coronavirus pandemic. Speaking to Business Standard, Deven Choksey, Managing Director, KR Choksey Investment Managers says, its beginning of the most competitive, hostile environment for Indian aviation sector. Air India, under Tata, may become dominant player, while Jet Airways, Akasa Air are also threats to IndiGo, SpiceJet and Go Air. Increased cost, margin pressure are a given in this situation. And this situation is inevitable. Airline crews, especially pilots, need years of training. Besides, a single aircraft needs an average of 15 crew member. Therefore, even if incumbents or newer airlines decide to hire new crew members, analysts feel ease in talent crunch pressure may be some time away. That apart, the attrition pressure has come at a time when the sector is reeling under record high aviation fuel prices and a weaker rupee. According to G Chokkalingam, founder and chief investment officer, Equinomics Research, similar to Indian IT, aviation may see a sudden spike in attrition rates. Near-record high ATF prices, stretched balance sheets, and falling rupee other tailwinds, he says. As per latest financial statements fuel expenses accounted for nearly 33% of IndiGo’s total cost while it was over 37% for SpiceJet. Employee costs, meanwhile, accounted for up to 9.4% of total expenses. Given this, analysts believe the troika of these factors will lead to aggravated margin pressure for airlines in the near-term, some of which may not have been priced in yet. On Tuesday, investors will eye India Services PMI data for June, along with other global cues for market direction.
