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Aviation sector faces Covid-19 turbulence: What analysts expect from Q1 nos

Amid restrictions on air fares given the Covid-19 pandemic, analysts, on an average, expect a yearly yield decrease for IndiGo by 11 per cent and for SpiceJet by 13 per cent.
The April-June quarter of FY21 (Q1FY21) brought mixed cues for the aviation sector. While airlines such as IndiGo and SpiceJet were allowed to resume operation from the last week of May, albeit with capped fares, air traffic remained thin amid fears of Covid-19 outbreak and the varied quarantine rules in different states. Yet, decline in aviation turbine fuel (ATF) prices, mark to market (MTM) gains on appreciating rupee, and continued cargo operation may trim losses to some extent, analysts say.

“With domestic air travel resuming only from May 25th at 1/3rd of approved 2020 summer schedule, we expect Q1 performance to be adversely impacted due to loss of peak summer travel days; truncated size of operations; little to no ancillary revenues (except for cargo operations); and travel restrictions by state governments adding to confusion thereby further denting consumer confidence,” noted Paarth Gala, research analyst at Prabhudas Lilladher.

On the profitability front, Ashish Shah and Vaibhav Shah, analysts at Centrum Broking expect InterGlobe Aviation-owned IndiGo to report a net loss of Rs 2,670 crore, while SpiceJet may incur a net loss of Rs 1,010 crore driven by low traffic volume, low fleet utilisation and poor coverage of fixed costs.

They add: With closing USD/INR rates in Q1FY21 remaining almost flat vis-à-vis Q4FY20, we estimate a relatively small MTM foreign exchange (Fx) loss of Rs 53.8 crore/Rs 33 crore for IndiGo and SpiceJet, respectively

Those at Elara Capital, meanwhile, expect the firms to post a cumulative net loss of Rs 1,250 crore in Q1FY21E as against a net profit of Rs 1,460 crore in Q1FY20.

As regards revenue, Gala of Prabhudas Lilladher pegs sales revenue at Rs 625.6 crore for IndiGo, down 92.5 per cent QoQ (93.4 per cent YoY), and at Rs 327.9 crore for SpiceJet, down 89 per cent YoY.

Yields and Capacity

Amid restrictions on air fares given the Covid-19 pandemic, analysts, on an average, expect a yearly yield decrease for IndiGo by 11 per cent and for SpiceJet by 13 per cent.

Yield, a key metric used to gauge an airline’s financial stability, is revenue earned per RPM (Revenue Passenger Mile) or RTM (Revenue Tonne Mile). It's the amount of money paid for the ticket, divided by the distance.

“While we build-in 5 per cent YoY expansion in ticket yields for IndiGo and SpiceJet in Q1FY21, RASK, however, should remain severely impacted (down 12-18 per cent YoY) due to lower load factors and near absence of ancillary incomes,” say analysts at Centrum Broking.

Meanwhile, analysts at Elara Capital opine that IndiGo and SpiceJet may witness capacity decline by 90 per cent YoY, which would erode airlines revenue by 75 per cent YoY, owing to complete shutdown of airline services during April-May and partial resumption of services from the last week May.

Cash flows to be tracked

Amid crunched revenue in the near washed-out quarter, India’s largest private airline (by market share) IndiGo, announced several steps to curtail expenditure. These include up to 25 per cent pay cuts for employees, deferment of salary increments and leave without pay for May-July’20; cut in discretionary expenses and capex deferral; negotiation with suppliers and lessors for better terms including freezing of supplementary rentals; prioritizing flying Neos to lower operating costs; and suspending dividends to conserve liquidity. IndiGo estimates these measures would help it generate additional liquidity of Rs 3,000-4,000 crore by December, 2020.

As regards SpiceJet, the budget-carrier’s cargo business, which remained relatively robust due to freighter operations and on-seat cargo operations during lockdown (20,200MT of cargo in freighter operations during lockdown, should cushion its cash flows, analysts say. 

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