IndiGo, SpiceJet face tough landing in Q4; covid dents outlook
The recovery in domestic passenger traffic that the sector was witnessing till February has stalled, owing to rising covid-19 cases and related curbs
InterGlobe Aviation Ltd and SpiceJet Ltd are expected to post miserable financial results for the March quarter (Q4FY21). InterGlobe runs IndiGo, India’s largest airline.
The recovery in domestic passenger traffic that the sector was witnessing till February has stalled, owing to rising covid-19 cases and related curbs. Moreover, aviation turbine fuel (ATF) prices have increased sequentially. The upshot: both IndiGo and SpiceJet are expected to report losses for Q4FY21.
Prabhudas Lilladher Pvt. Ltd expects losses for the industry to widen sequentially given the dent in consumer confidence leading to lower unit revenues in an already seasonally weak quarter and 25% quarter-on-quarter rise in ATF prices.
“We expect IndiGo/SpiceJet each to report sequential dip in passenger load factors (PLFs) to 71%/77%. We expect yields to decline by 3%/4% for IndiGo/ SpiceJet, respectively,” said the brokerage firm in a report on 7 April. Cash burn remains a key monitorable too. In its December quarter earnings call, IndiGo said its cash burn had dropped to an average of ₹15 crore per day for the quarter from ₹25 crore per day in the September quarter. Further, this time around, investors can evaluate SpiceJet’s financial health better, given that the balance sheet would be available as annual results will be released too.
Meanwhile, the industry’s woes are far from over. The new covid-19 wave will hurt travel demand, which in turn will impact the profitability of airlines.
Daily fliers have shown a declining trend so far this month. ICICI Securities Ltd’s analysts wrote in a report on 19 April, “Weekly average daily fliers came in at around 193,000 in the week ended 17 April versus around 232,000 in the week ended 10 April.”
According to the brokerage firm, in February and March, monthly average daily passenger traffic stood at around 280,000 and 249,000, respectively. “Rising covid cases and increasing lockdown restrictions in various states will remain an overhang on air traffic,” point out ICICI Securities’ analysts.
To be sure, positive news flow on vaccinations would help boost confidence to travel. But from a near-term perspective, rising covid-19 cases are likely to keep sentiments weak for aviation stocks.
Analysts are now looking at the December quarter for signs of meaningful recovery.
So far this calendar year, shares of IndiGo and SpiceJet have declined 11% and 35%, respectively. In comparison, the Nifty 500 index has increased nearly 5% during the same time.
IndiGo’s ample cash reserves and robust balance sheet can help it deal with the current crises relatively better than smaller listed peer SpiceJet.
IndiGo has also gained domestic market share during the pandemic. According to the Directorate General of Civil Aviation, IndiGo’s market share stood at 54.2% in February 2021 versus 47.9% in January 2020.
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