Saturday, January 20, 2007

Airline Stock Manipulated or just plain mistakes made?

I read with interest, an online edition of the business standard dated 19th Jan and that article mainly dealt with poaching of engineers by the Airlines in India. Poaching in this case refers to Aircraft Maintenance Engineers who jump from one company to the other, at the drop of a hat, lured away by a competitor for a higher pay (what else has people drooling about these days but moolah?). That’s all going to be stopped, like the scheme they invented for stopping the poaching of pilots, says the article. Not exactly Veerappan style poaching but close.

Anyway, what interested me more about this article is that the Author goes on to mention that the Airline industry is contemplating on increasing fuel surcharge on passenger tickets, to cover the increased cost of fuel. Now this is what I’d like to talk about and have done so in my blog in the past, maybe I stand vindicated. The Airlines are justified in making such a move, if they actually do it.

The Government made some noises about reducing the fuel bill burden on the Airlines by perhaps cutting taxes on the product. This prompted some readers of my blog to question me about whether I was wrong about my assessment, that the rising costs of fuel was going to be a major cause of downfall of the Airlines. I stood my ground saying that a reduction in tax wasn’t going to be quick and in any case wasn’t going to be meaningful.

Then another thing happened. I was in India briefly a couple of weeks back and saw on CNBC something strange happening on the BSE Mumbai Stock Exchange. The price of crude oil fell drastically in the World market. The BSE in Mumbai reacted to that news in frenzy, driving up the Airline stocks. I was just holding my head in my hands. Is the stock market a bit too euphoria driven and less driven by hard facts? Did they think that a drop in world crude prices was going to benefit Airline in India (or anyone else) so quickly?

I began to wonder how mature this market really is and whether everything is based on rumors and speculation based on sentiment rather than cold hard figures. Let me tell you why. Firstly, a fall in global crude prices means nothing for operators in India. The Oil PSU’s and the Ministry then decides whether to do something about it, or not. The Business Standard article goes on to say that jet fuel prices actually went up, prompting the operators to ponder about another increase in fuel surcharges. What does that tell you about the Airline stocks and their manipulations by the brokers at the BSE? Was this a case of jumping the gun or bad valuation as has been done in the Airline stocks since they became public, in the first place? Were more investor lured into a false sense of security and their money invested unwisely? These are the questions to ask.

The industry needs support, there’s no doubt about it. We need all of them to survive and do well, as a consumer that is in our best interest. What they need is level headed decision making. The Airlines have an association that comes together to fight common issues such as “poaching” but perhaps they are not asking each other to stop killing each other in pricing, revenues and other areas. Not much use having such an association that can be a mutual “backscratchers club” only on certain issues and a mutual “backstabbers club” when it comes to survival.


tpraja said...

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Anonymous said...

Hi anup was out on a ferry of a new Airbus (MSN 30... Hi anup was out on a ferry of a new Airbus (MSN 3012). Just got back. Could you send me your E mail Id and Contact details

Blog-Capt. Anup Murthy said...

Hi Sanjay, good to hear about the ferry of the Airbus A320. Good flying mate. I did write to you on mail but i guess u did not get it? Here's another one at Sing:

Balakrishnan said...

Happy New Year Captain! Nice to hear from you after a long time. Good that you are a Ferrari fan, I
'm enjoying my time being a turncoat .. :)

Good point you've brought out here. Sad to see AMEs poached, very similar to us IT folks :) And I don't know when air-travel would become affordable enough in india, while enabling the carriers to survive at the same time.
The government has a much bigger role to play, it is sad, especially here in tamilnadu, to see so much political opposition to modernising/expanding the airport area.



Capt. Anup Murthy said...

Thanks Balakrishnan. Airports is another interesting subject. I was in Bangkok for the last couple of days and have been reading do much about the criticism that the new Suvarnabhumi Airport is getting.I am about to blog about this soon and a brief about Bangkok in general because GVK ( (My Take By GVK) wrote to me saying that all info he has on Bangkok is that it has massage parlours and chaotic traffic.

Venkat Ramanan said...

Hi Captain!
That was an interesting post!! I think, It is not only w.r.t Airline stocks, but pretty much in many other stocks, that our market reacts quickly and it quite looks manipulative!!! When Bharti announce they would hive off their tower business, their stocks go up!!! :-)) :-)) Very quick reactions not backed by any sound reasoning... Pretty much similar to our netas and babus who go around the world saying we are a superpower and can be compared to China, yet not realising the fact that there is HUGGGGEEEE difference between the two countries!! Plz keep us all informed with what is happening in the Aviation industry! BTB, HOw is the going for military aviation in the years to come?

Capt. Anup Murthy said...

Thanks Venkat, I'll keep it going. Military aviation is on the upswing, this years Bangalore Air Show is mostly tailored for military aircraft business and the IAF is going to benefit from it. I think their problem will be similar to civil aviation, in the form of shortage of skilled pilots and attrition rates because it is natural for a IAF pilot to want to jump into civil aviation. Money talks! Lets see who wins the race to supply frontline fighters to India. Is it going to be the new gen Migs, Sukhois or the Boeing F-18 hornets or the SAAB Viggen? We should know soon (I hope).