BackAs losses mount at Apac airlines, IndiGo, SpiceJet may fare better
Indian airlines may be slightly better off due to likely rebound in traffic, cost saving efforts, stable rupeeWhile IndiGo sits pretty in terms of cash balance, other Indian airlines may struggle for liquidity
PremiumThe International Air Transport Association (IATA) has said Asia Pacific (Apac) airlines operating in the Apac region, including India, are expected to report combined losses of $31.7 billion in 2020. These losses are estimated to be lower in 2021 at $7.5 billion.
While a sharp reduction in losses is estimated, note that losses are still expected to remain high next year. With the idea of remote working having accelerated post the pandemic, the need for travel has reduced substantially, and analysts worry that some of the damage to the sector may linger for some time.
Even so, some analysts reckon Indian airlines may be slightly better off. “Some of the Indian airlines shouldn’t be incurring losses in FY22," said an analyst requesting anonymity. Factors that could help the recovery include anticipated rebound in air traffic, sustained cost reduction efforts and a stable rupee.
Of course, this would also require crude oil prices to stay subdued.
Prabhudas Lilladher Pvt. Ltd estimates InterGlobe Aviation Ltd to report a post-tax loss of ₹4,456.3 crore in FY21. InterGlobe runs IndiGo, India’s largest airline. The brokerage firm estimates IndiGo to swing to a profit in FY22 with estimated earnings at ₹1,938 crore.
On the other hand, Prabhudas Lilladher estimates SpiceJet Ltd to report a relatively smaller loss of ₹59 crore in FY22 after ending FY21 with a loss of ₹1,139 crore.
Shares of IndiGo have increased by 3% from their pre-covid highs in early 2020, whereas the SpiceJet stock is 39% lower than its pre-covid high. The former has reported massive market share gains, resulting in the outperformance of its stock.
As of now, while the worst may be over in terms of profitability, the best in terms of cost reduction is also over, says an analyst. As airlines gradually increase their capacity, costs are also expected to rise.
Besides, while IndiGo is sitting relatively pretty in terms of its cash balance, other Indian airlines may struggle for liquidity if losses continue for longer than expected.
To be sure, the consistent recovery in domestic traffic is helpful. According to the Directorate General of Civil Aviation, there was a 34% month-on-month improvement in October in domestic passenger traffic. Over January-October 2020, passengers carried by domestic airlines declined by 58% year-on-year.
As such, nobody expects an increase in traffic to pre-covid levels in FY21. Some analysts maintain that a full recovery to pre-covid levels even in FY22 appears tough.
Meanwhile, even as IndiGo gained market share during the pandemic, note that the measure has dropped to 55.5% in October from a peak of 60.4% in July. True, it’s much higher than the 48% level in January, but investors need to watch out for the extent of market share gains IndiGo is able to retain as the impact of the pandemic wanes.
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