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Covid-19 impact: IndiGo, SpiceJet may clock combined Q4 loss of Rs 3,350 cr

The benefit of crash in crude oil prices in March in likely to be off-set by the depreciation of rupee and slim air traffic movement in the March quarter
As most aircraft stand parked amid the outbreak of coronavirus (Covid-19) pandemic, March quarter of financial year 2019-20 (Q4FY20) could be first among the many loss-making quarters for the aviation sector, fear analysts.

Almost all airlines, including IndiGo and SpiceJet, had drastically cut operations by mid-March, and had begun grounding fleet as net bookings fell into negative — meaning there are more cancellations than fresh bookings on domestic routes. It all came to a complete halt when the government on March 25 imposed a ban on domestic air travel to stem the spread of the virus. This was on top of a ban on international flights which had been in place since March 22.

According to Gagan Dixit, research analyst at Elara Capital, IndiGo and SpiceJet could report a cumulative net loss of Rs 3,350 crore in Q4FY20, as against a profit of Rs 570 crore in Q3FY20 and Rs 650 crore in Q4FY19.

“We expect a YoY yield decrease of IndiGo by 8 per cent and SpiceJet by 10 per cent on lower airfare amid fear of Covid-19 keeping airfares in check, nil fleet addition by SpiceJet and subdued 1 per cent QoQ fleet addition by IndiGo,” he wrote in a sector preview note.

Crude oil benefit nullified?

The benefit of crash in crude oil prices in March in likely to be off-set by the depreciation of rupee and slim air traffic movement in the recently concluded quarter.

“While crude prices have slumped 50 per cent in March, the impact of the same would be realised only once operations resume. The interim cut of 11-12 per cent in aviation turbine fuel (ATF) prices effective March 23 will have little impact as operations got suspended from March 25. Further, the rupee has depreciated by 5.8 per cent in Q4FY20E which will increase outgo for US dollar-based costs and also result in steep fx mark-to-market (MTM) losses on operating lease liabilities,” wrote analysts at Centrum Broking in a results preview note.

According to the brokerage, Interglobe Aviation-run IndiGo could report a net loss of Rs 1,750 crore in the quarter under review primarily due to MTM losses worth Rs 1,010 crore. It had reported a net profit of Rs 496 crore in the December quarter of FY20 and Rs 589 crore in Q4FY19.

“We expect IndiGo’s passenger traffic to grow 0.6 per cent YoY to 17.6 million in Q4FY20 due to impacted traffic in March. Load factor, too, will likely decline to 82.5 per cent, down sharply by 350 basis points,” they said.

The analysts, however, expect the airline to end the fiscal year with a 48 per cent domestic market share, having carried 68 million passengers.

Those at Kotak Institutional Equities, however, expect the airline to report net sales at Rs 7,345.2 crore, down 6.8 per cent YoY from Rs 7,883.3 crore logged in Q4FY19. Sequentially, it would be down by 26 per cent.

As for SpiceJet, Centrum Broking expects the airline to report a net loss of Rs 1,050 crore due to MTM loss of Rs 650 crore. With an approximate passenger traffic growth of 11 per cent in Q4FY20, the analysts expect the airline to report Revenue per Available Seat Kilometer (RASK) – a metric to gauge the efficiency of an airline by dividing total revenue by seat-kilometers the carrier has traveled – at Rs 3.9, down 3.6 per cent YoY.

“While Cost per Available Seat-Kilometer (CASK) ex-fuel is estimated grow 43.8 per cent YoY to Rs 3.8 due to higher maintenance costs and likely fx MTM loss of Rs 650 crore in Q4FY20, we estimate revenue to grow at a relatively moderate pace of 16.5 per cent YoY to Rs 2,950 crore with Earnings before interest, taxes, depreciation, amortization, and restructuring or rent costs (EBITDAR) loss of Rs 370 crore," the analysts wrote in the note.

They add: Higher maintenance costs on 30 aircrafts taken over from Jet Airways had been a drag on earnings and costs associated with the grounded 13 Max aircrafts have been a drag on cash flows. SpiceJet had gross debt of Rs 1,000 crore in Dec-19 with free cash levels being insignificant. Additional funding support from banks is unlikely in our view. Therefore, we assume Boeing to release at least Rs 176 crore.


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