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Saturday, 02 September 2017 15:42

Civil Aviation

Introduction

  • India’s civil aviation industry is seeing high-growth, passanger traffic witnessing a growth of 17.62 per cent over the previous year.
  • India can become the third largest aviation market by 2020 and the largest by 2030.
  • India was world’s fastest growing domestic travel market for the 22nd time in a row, recording a 26.6 per cent year-on-year growth in January 2017, according to the IATA.
  • India replaced Japan to become the third largest domestic aviation market globally, recording a total of 100 million domestic flyers in 2016, according to Centre for Asia Pacific Aviation (CAPA).
  • According to CAPA, domestic air traffic is expected to grow 25 per cent and cross 130 million in financial year 2017-18.

Growth Factors

  • Increasing disposable incomes
  • Fall in prices of Aircraft Turbine Fuel (ATF)
  • Industry-friendly government policies
  • Foreign Direct Investment (FDI) in domestic airlines
  • Increase in tourism
  • Visa reforms
  • Low-cost carriers (LCCs)
  • Improving airports infrastructure
  • Advanced information technology (IT)
  • Growing emphasis on regional connectivity
  • Positive macro-economic factors

Major investments in aviation:

  • Rolls-Royce Holdings Plc, has opened a new defence service delivery centre (SDC) to support over 750 aircraft engines used by the Indian Air Force, Indian Navy and Hindustan Aeronautics Ltd.
  • Qatar Airways to start India’s first fully owned foreign airline
  • Indigo and GoAir, plan to expand their network to Gulf cities
  • GVK Power & Infrastructure Ltd., has won the right to build Mumbai’s second airport in Navi Mumbai, which will require an investment of Rs 16,000 crore
  • IndiGo, has entered into a partnership with global distribution system services operator Travelport, to expand its global presence across 180 countries.
  • Several European countries like Greece, Netherlands, Georgia and Sweden, have shown interest in signing an open sky agreement with India which will enhance the country's international connectivity.
  • India has signed Open Skies Agreement to encourage connectivity and passenger travel between India and Jamaica, Guyana, Czech Republic, Finland, Spain and Sri Lanka

Government Initiatives

  • In the Budget 2017-18, allocation for Aviation Ministry was substantially increased by over 22 per centfor the next financial year.
  • Indian airline companies have been awarded with the right to fly to 128 routes across India
  • Government approved construction of 18 Greenfield airports
  • The Cabinet Committee on Economic Affairs has approved to revive 50 un-served and under-served airstrips in three financial years starting from 2017-18
  • Government has started a new regional connectivity scheme (RCS) called Ude Desh ka Aam Nagrik (UDAN) under which fares will be capped at Rs 2,500 for half the seats in an one-hour flight
  • Government plans to double the number of airports over the next two to three years
  • The Ministry of Civil Aviation along with Airports Authority of India (AAI) plans to develop small airports with frugal facilities, and encourage private airlines to bid for routes connecting these small airports with existing larger airports

Growth factors in graphs 

 

 

Published in Macros
Friday, 30 November 2001 05:53

Crude Opportunities

End of Crude Bull

... and beginning of a new mega trend with great investment opportunities!

This is a no-brainer that crude oil prices are falling due to a massive global supply glut caused by re-emergence of US shale oil. In long run this huge supply source will maintain a downward pressure on oil prices. Intermittent events like supply disruptions in Libya or Nigeria, or an OPEC agreement may cause a brief respite to oil prices but ultimately the price trend will remain down. Another major source of pressure on oil prices is the steady reduction in solar energy costs which is well on its way to become the major source of energy in a decade or so. 

Energy is not going to be a major concern in times to come. This would be a big setback for oil producing countries but a boon for those who need it.

Failed OPEC efforts

OPEC countries tried to curb the US shale oil business by keeping supplies high and driving down the prices to drastically low levels of near 25$ (from highs of above 100$). It did lead to a dark period of bankruptcies and job cuts in US during 2014 to 2016. Goldman Sachs has estimated that nearly 170,000 oil and gas jobs were wiped out during this period as companies big and small scrambled to slash costs and stave off bankruptcy. But Saudis could not continue this for long as lower oil prices for such a long period meant eating out from their reserves as they have no other source of income.

So OPEC decided to finally cut production in 2016. This led to doubling of oil prices to near 50$ a barrel and along with this reemergence of US shale oil businesses. This simply illustrates that there is a cap on oil prices now – as soon as prices will rise above say 50$, the shale supply will rise to offset it and prices will again drop.

An interesting fact about Saudi Arabia

Saudi Arabia was a prime beneficiary from the 1998 to 2014 commodity “supercycle” that saw the oil price rise by 1,062 percent to a high of $116 a barrel. The resulting tsunami of cash flow allowed the nation of 31 million, where only 5.5 million have jobs, to accumulate $737 billion in foreign exchange reserves, while fully subsidizing a Western upper-middle-class lifestyle for the population.
Despite Saudi Arabia needing a price of $90 per barrel to fund its lavish domestic entitlements, the kingdom in mid-2014 spiked production by 2 million barrels a day to destroy the U.S. oil fracking industry — which, based on a $90 a barrel breakeven cost, had more than doubled U.S. crude oil production to 9.3 million barrels a day.
According to George Friedman of Geopolitical Futures, the price war cost Saudi Arabia at least $198 billion though January 2017, and created a worldwide surplus that drove the price oil down to an 18-year low of $23 a barrel in January 2016. Even after modest production cutbacks since then, the price only partially recovered, to about $53.18 a barrel.
The Saudi predatory attack caused a large number of bankruptcies across the U.S. oil patch and sent U.S. crude oil production skidding to 8.4 million barrels a day by mid-2016. But instead of the American shale boom going bust, the U.S. Energy Information Agency reported that domestic crude oil production hit just 9.1 million barrel a day. Ref - www.breibart.com

 

Massive Shale Oil Reserves

Wikipedia: "A 2016 conservative estimate set the total world resources of oil shale equivalent to yield of 6.05 trillion barrels of shale oil, with the largest resource deposits in the United States accounting more than 80% of the world total resource. For comparison, at the same time the world's proven oil reserves are estimated to be 1.69 trillion barrels."

The US now holds more oil reserves than Saudi Arabia and Russia, the first time it has surpassed those held by the world's biggest exporting nations, according to a new study. 

Beginning of a new Mega Trend - And Investment Opportunities

Long term low energy prices is a clear mega trend in its starting phase and if one can identify the long term gainers of this trend, he would be making multi-time returns from his investments.

How do we find which companies would gain most from this long term trend of low energy prices? It is simple - just find the industries that are energy intensive and whose products would see rising demand. One such industry is chemicals where energy cost is about 30% of total cost. Stocks of most of the good companies in this sector have already gone up substantially, but since we are talking here of a mega trend that would continue for decades to come, there is huge scope for growth. 

Companies like SRF, Deepak Nitrite, Atul etc are some of the excellent investment opportunities.

Published in Macros