Photo: Ramesh Pathania/Mint
Photo: Ramesh Pathania/Mint

Will Indigo’s reign over the Indian skies expand post COVID-19?

  • InterGlobe runs IndiGo, India’s largest airline with a 48% market share for domestic air travel
  • Even though IndiGo remains better placed in riding this tide, things are hardly going to be easy

Investors are evidently less worried about the future prospects of InterGlobe Aviation Ltd, compared to, say, those of SpiceJet Ltd. In the past five weeks, the latter’s shares have plunged nearly 60%, while those of InterGlobe have fallen 33%.

InterGlobe runs IndiGo, India’s largest airline with a 48% market share for domestic air travel.

“IndiGo is in the best shape with cash availability of 6-7 months, whereas other airlines can survive for 1-2 months only," said Varun Ginodia, analyst at Ambit Capital Pvt. Ltd.

Analysts at Kotak Institutional Equities echoed the view: “IndiGo’s sufficient cash buffer ( 9,400 crore as of December 2019) should be enough to weather this storm, though other airlines will need external support in the form of interest payment moratoriums and lower taxation on crude and other imports."

Survival of the fittest.
Survival of the fittest.

According to a Business Standard report, airlines in India have sought help from the government to help them pay salaries. It remains to be seen how much help comes.

But as things stand, IndiGo is clearly better off with its higher cash position. As such, its share of the market may well increase on the other side of Covid-19.

Even though the airline remains better placed in riding this tide, things are hardly going to be easy. “There remain imponderables: When does normalcy return in airline operations, does it incur higher near-term costs (if it grounds aircraft and does not return it to lessors) as it plans for the future, and when can global supply chains return to normalcy for the airline to begin receiving neo deliveries (Airbus is facing falling build-rates as EU supply chain struggles)," said the Kotak analysts in a report on 24 March.

Meanwhile, with flights not operating during the three-week lockdown period in India till 14 April, airlines won’t earn revenues, but they would still have to incur costs, such as salaries, lease rentals and maintenance. Some costs, such as fuel expenses, will decline with operations halted. And IndiGo has already announced a cut in salaries. Analysts say airlines could try and renegotiate with vendors on some fronts, say, lease terms, or explore possibilities of deferring payments.

“45-50% of cash requirement is towards lease rent which could see some support from lessors," said Ginodia of Ambit Capital.

Lower load factors and yields would cloud the March and June quarters’ profitability. Ambit Capital expects IndiGo’s June quarter passenger traffic growth to decline by more than 45% on a year-on-year basis. Further, one cannot be certain that the lockdown won’t extend further and this uncertainty won’t help investor sentiment.

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