The pandemic-hit aviation segment is showing a healthy rebound with a steady increase in passenger traffic. Quarterly results from IndiGo are a strong indication of this recovery, which comes as the holiday season adds to an increase in passenger traffic.
IndiGo beat estimates with revenue booked in October 2021 (ticketing for Nov-Dec 21) showing a recovery to pre-Jan 2020 levels (pre-COVID) levels.
Another strong indication towards a rebound is reflected in daily air passenger demand data published by the Ministry of Civil Aviation, with Oct 2021 traffic up 25 per cent month on month to 8.5 million passengers (down 30 per cent compared to CY19 levels). This is the highest since the lifting of COVID-19 restrictions. The jump has been on account of festive season demand in Oct 2021.
According to Motilal Oswal, IndiGo management feels the consolidation of Air India (if it happens) could result in higher competition. Management also expects a faster-than-expected recovery in demand (corporate travel has recovered to 50 per cent versus January 2020 levels and it expects higher travel post-Diwali as more offices open up).
As per experts from Motilal Oswal, there are concerns over the normalization of yields and this combined with higher fuel prices can prove to be a challenge for IndiGo in the near term. IndiGo can benefit as it has a higher domestic market share 57 per cent in Q2FY22. The company had posted a loss of Rs 14.4 billion versus a loss of Rs 31.8 billion in Q2FY22. Interestingly the cash burn per day decreased by 39 per cent QoQ to Rs 200 million in 2QFY22. The company also saw a net addition of two aircraft QoQ (with a total fleet size of 279 aircraft) as it returned 13 A320ceo aircrafts while inducting eight A320neo, three A321neo, and four ATR aircraft. The IndiGo management expects an entirely new (NEO) aircraft fleet by the end of CY22.
The Motilal Oswal report indicates that IndiGo may emerge from the pandemic stronger than before, with various pre-emptive steps already undertaken.
Experts point out that India’s aviation sector is seeing a solid revival after pandemic related turbulence.
“On October 9, domestic airlines flew more than 300,000 passengers for the first time since February. While this is still a shade shy of the pre-COVID level of 350,000 daily fliers, things are certainly looking up for the sector. Major airports saw heavy crowds and long queues last weekend, indicating the comeback of air travel. The country’s two biggest airports, Delhi and Mumbai, are reopening terminals that had been closed earlier due to low footfalls. In what comes as a shot in the arm ahead of the peak holiday season, the government has allowed airlines to operate at 100 per cent capacity from October 18,” observes Girish Linganna, an expert in the Aerospace sector and Managing Director, ADD Engineering India an Indo- German Company.
This expert also observed that India is also re-opening its borders for tourists after 18 months. The government started issuing fresh tourist visas from October 15 to foreigners who are coming in through chartered flights. Those who want to visit India on regular commercial flights will be able to do so from November 15. Rules pertaining to their testing, quarantine and vaccination are yet to be laid out. To help the tourism industry, the government is giving out visas to the first 500,000 tourists free of cost. The scheme will be applicable till March next year,” added Linganna.
Despite this as per a recent observation by ICRA the aviation turbine fuel (ATF) prices, has seen a sharp increase of 78.6 per cent on a YoY basis till October 2021, attributed to an increase in crude oil prices. This coupled with the low capacity utilisation of the aircraft fleet will continue to weigh on the financial performance of Indian carriers in FY22. Furthermore, the credit profile of most Indian carriers continues to be characterised by a weak liquidity position.
