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Home / Markets / Mark To Market /  IndiGo, SpiceJet set for a nasty Q1FY22 amid second wave turbulence

InterGlobe Aviation Ltd, which runs India’s largest airline, IndiGo, is scheduled to announce its June quarter (Q1FY22) results today. Expectations are not running high and understandably so.

The reason is simple. The recovery in passenger traffic that the aviation sector was witnessing until February came to a pause with the second wave and the ensuing restrictions. Add to this, crude oil prices have inched up, which means operating costs increase for airlines. For perspective: average aviation turbine fuel (ATF) prices in Q1FY22 increased by around 97% year-on-year and 12% against the March quarter (Q4FY21).

In this backdrop, analysts expect IndiGo’s losses to widen in Q1FY22 vis-à-vis Q4FY21. “Cash burn to deteriorate in 1QFY22E as fuel costs are significantly higher while traffic recovery seen until 4QFY21 came to a screeching halt," said a report by Ambit Capital Pvt. Ltd on 12 July. The broker expects IndiGo’s net loss to increase to Rs2110 crore in Q1FY22. For comparison, IndiGo’s net loss in Q4FY21 and Q1FY21 stood at Rs1159 crore and Rs2849 crore, respectively.

“Given the current performance erosion with second wave of Covid-19 we anticipate the cash burn to further increase in the June quarter," IndiGo had said in its March quarter earnings conference call. The firm’s average net cash burn had increased to Rs19 crore per day in the March quarter from Rs15 crore per day in the December quarter. Investors should closely follow IndiGo’s management commentary on the demand conditions and the outlook on yields, a measure of pricing for airlines.

Meanwhile, smaller peer SpiceJet Ltd too is expected to deliver weak numbers for Q1FY22. Prabhudas Lilladher Pvt. Ltd’s report, dated 7 July, said, “We expect, IndiGo/ SpiceJet each to report sequential dip in passenger load factors to 61%/ 69.5%. Yields are likely to remain under pressure." The broker further adds, “Adjusting for the Boeing compensation (Rs140 crore), SpiceJet to widen quarter-on-quarter from Rs376 crore to Rs650 crore.

To be sure, IndiGo being the market leader is in a far better place, helped by its relatively strong balance sheet. After all, it had free cash worth Rs7100 crore at the end of March. “(IndiGo) is in no need of a capital raise. The proposed QIP is more of an insurance cover against extreme scenarios. Our calculations indicate SpiceJet needs Rs3200 crore capital injection for operations to sustain," pointed out Ambit Capital in its report.

Unsurprisingly, shares of IndiGo are trading 15% above their pre-covid highs seen in early 2020. On the other hand, SpiceJet stock is around 34% lower than its pre-covid highs in early 2020. Investors would watch the recovery in traffic demand closely, moving ahead.

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