Indian government’s response to Operation Sindoor led to the closure of 27 airports in north, west, and central India. It has sent shockwaves throughout the aviation community. This departure from tradition, sparked by heightened security concerns following military strikes in Pakistan and Pakistan-occupied Kashmir, has led to mass cancellations and diversion of flights and instantaneous market reactions.
Airport shutdowns caused extensive flight disruptions, with Indian carriers cancelling over 430 flights, which is about 3% of planned operations, and Pakistani carriers cancelling more than 147 flights, about 17% of their daily operations. Flightradar24 said airspace over Gujarat to Kashmir, along India and Pakistan’s western corridor, was close to empty as airlines steered clear of the volatile area.
Stock Market Reactions
IndiGo announced that it was canceling flights to and from Srinagar, Jammu, Amritsar, Leh, Chandigarh, Dharamshala, Bikaner, Jodhpur, Gwalior, Kishangarh, and Rajkot until 10 May. “We are keeping a close watch on the situation, and additional schedule changes in other sectors might happen. We know these are sensitive times, and as always, we are here to assist you,” IndiGo stated on X.
SpiceJet also made flight cancellations to and from Leh, Srinagar, Jammu, Kangra, Kandla, and Amritsar on 7 May officially due to airport shutdowns. As a reaction to the disruption, Spicejet and Interglobe Aviation (Indigo) shares have plunged by 3.3% and 4% respectively on Thursday’s trading session.
Also read: Operation Sindoor: How It Triggered a Historic Crash in Pakistan’s Stock Market
How may airline stocks be affected?
Indigo single-handedly cancelled more than 165 flights across 11 airports, suspending its operations until 10 May. The airline operates approximately 2,200 flights daily, and due to its cancellations, around 7.5 percent of its daily flights are hampered. On the other hand, SpiceJet operations were also affected due to the closure of airports.
The following are the reasons why airline stocks may be impacted:
1. Loss of Revenues from the Cancelled Flights: Carriers flying to and from the shut-down airport will experience a direct loss in revenues due to flight cancellations. They would also be forced to refund the fares, pay passenger compensation, or absorb rebooking costs by passengers, which would impact earnings directly.
2. Cost of Operations on the Rise: Redirecting planes and personnel to other airports adds fuel usage, manpower requirements, and logistical complexity. Even parked planes still have expenses such as parking charges, maintenance, and leasing fees.
3. Disruption to Key Routes: If the closed airport is a major domestic or international hub airport, the disruption can lead to delays and cancellations throughout the network. This can lower passenger confidence and impact long-term demand, particularly if travelers feel ongoing instability.
4. Negative Investor Sentiment: Markets generally respond adversely to unexpected geopolitical or military action. The ambiguity of Operation Sindoor might cause investors to sell airline stocks in anticipation of prolonged disruptions or broader regional conflict.
5. Insurance and Regulatory Impact: Airlines might have to pay increased insurance premiums for perceived security threats. Regulators may also enforce stricter safety and operating procedures, increasing compliance costs and administrative weight.
Conclusion
In the short run, airline shares, particularly those with significant exposure to the affected airport, may witness a steep fall. The medium-run effect will rely on the length of time for which the airport is closed down and whether further escalation takes place.
Written by Satyajeet Mukherjee
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