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Losses of Indian aviation firms InterGlobe Aviation Ltd and SpiceJet Ltd declined on a sequential basis for the quarter ended December.

InterGlobe runs IndiGo, India’s largest airline by market share. For perspective, IndiGo’s net loss for the December quarter dropped to 626 crore from 1,195 crore in the September quarter.

During the period under consideration, SpiceJet’s reported net loss declined to around 57 crore from 113 crore.

Even as traffic recovery is underway, risks loom for the sector. One, analysts do not expect yields to improve meaningfully from a near-term perspective. Yields are a measure of pricing for airlines.

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Slow journey

“Yields were pretty much muted in January but improved in February. Now, it all boils down to how March would pan out," said an analyst, requesting anonymity.

Here, an increasing number of coronavirus cases may play spoilsport on demand too. According to Centrum Broking Ltd, in the December quarter, IndiGo and SpiceJet’s ticket yield declined by 4.6% and 7.1%, respectively, compared to the same quarter in the year-ago period.

Another cause for worry for airlines is that crude oil prices have understandably increased substantially from the lows seen during the lockdown months in 2020.

Some expect passenger load factors (PLFs) to offer comfort. Varun Ginodia, analyst, Ambit Capital Pvt. Ltd, said: “On the positive side, load factors have started to improve over the last few days in February (>80% vs 70% in January 2021), though offset by higher ATF prices recently (up 20% q-o-q in Q4FY21 so far and up >50% from lows seen in Q1FY21)."

Data from the Directorate General of Civil Aviation shows that PLFs of most airlines have declined in January 2021 vis-à-vis December 2020.

The government has extended the 80% pre-covid domestic capacity limit for airlines until 31 March. Additionally, fare bands have been increased by 10% at the lower end and 30% at the upper end. The fare regulations would also remain in place until 31 March.

“We believe this would be the last set of restrictions and expect fare regulations to go away post March 2021," said Ginodia. “We continue to believe the share price of IndiGo would remain range-bound as we see sector disruption over the next six months, ensuing fare war post March 2021, while liquidity constraints at weaker players would intensify."

To be sure, shares of IndiGo have performed well despite the pandemic headwinds, as the airline has gained market share over the past one year. It also helps that its balance sheet is robust.

Even so, passenger traffic recovery will be a key factor that can drive fortunes of airlines hereon.

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