Despite rebound, airline stocks to underperform; investors advised caution

Even as costs are lower, demand weakness likely to keep airlines in the red for most of FY21

Aviation stocks SpiceJet and InterGlobe Aviation (IndiGo) have rebounded 8-23 per cent since their lows in March. The gains came on the back of a market rally, expectations of a relief package by the government, falling crude oil prices, and renegotiation of lease rentals. Investors, however, should be cautious, given a weak outlook for FY21 and higher fixed-cost structure of the airline industry. 

Recently, global aviation consultant CAPA indicated that domestic passenger volume could fall by 40 per cent in FY21 to 80-90 million, with a similar fall in international passenger traffic to 35-40 million. The consultancy also expects load factors