New Delhi [India], November 5 (ANI): Indian aviation could emerge as a major beneficiary of any de-escalation in the West Asia conflict, with changing geopolitical dynamics following the US midterm elections potentially improving the industry's operating environment, according to a report by Jefferies.

The report said a possible shift in geopolitical conditions after the US midterm elections could revive the so-called 'end-of-war trade', similar to the positive market sentiment seen in June. However, the path towards de-escalation remains uncertain.

Any easing of hostilities could provide relief to Indian airlines and airports through lower aviation fuel costs, reduced flight rerouting expenses and a recovery in passenger traffic. 

These factors could improve the industry's economics after several months of operational disruptions, capacity constraints and elevated airfares.

It stated, "The path remains uncertain, but Indian aviation could be a key beneficiary of any de-escalation in the WA conflict, with lower fuel & rerouting costs improving industry economics".

Indian aviation has faced challenges over the past six months, with capacity cuts and flight disruptions affecting domestic and international routes. Airlines have also increased fares to offset higher operating costs, which has weighed on passenger demand.

The report noted that passenger traffic growth has remained subdued for the past six quarters for various reasons, with the September quarter witnessing the worst quarterly declines since the COVID-19 pandemic.

Despite this weakness, the report highlighted that the underlying travel demand appears healthy, as reflected in the robust performance of India's hotel sector. A potential easing of geopolitical tensions could help airlines restore flight schedules, reduce operational constraints and improve consumer confidence, creating conditions for a recovery in passenger traffic.

For airlines, lower fuel and rerouting costs could provide an opportunity to shift their focus from protecting margins through higher fares towards stimulating demand and increasing passenger volumes.

Jefferies said airlines have benefited from elevated airfares, which have partly offset higher fuel and operating expenses. However, sustained high fares risk limiting demand in a market where airlines have historically used competitive pricing to attract passengers.

A reduction in operating costs could allow airlines to improve operating spreads while focusing on higher passenger volumes and better aircraft utilisation.

Airports could also benefit from a recovery in passenger traffic. Jefferies said Indian airports are already witnessing healthy growth in non-aeronautical revenues, supported by retail, food and beverage, duty-free and other commercial activities.

A rise in passenger numbers could provide an additional growth driver by improving aeronautical revenues while also supporting spending on commercial services within airports. 

At the same time, moderation in the USD/INR exchange rate could further reduce expenses linked to aircraft leases, maintenance and other dollar-denominated operating costs. (ANI)