IndiGo is expected to be the first domestic airline to recover from the ravages of the pandemic and emerge stronger as the second-quarter results (July-September, 2021) clearly show that there has been progress post-Covid second wave.

IndiGo’s recovery will bring good tidings for other domestic carriers as the airline, with a market share of around 58 per cent, sets the pace for the industry. The last few months also saw two major developments, with Tata Sons bagging government-owned Air India and one of the country’s leading business magnates, Rakesh Jhunjhunwala, announcing the launch of his airline, Akasa Air, instilling confidence in an industry more known for failures than success stories.

Another major factor that is expected to help recovery is rising vaccination counts and the relaxation of testing norms by several States.

The scenario was quite different during the first quarter of the current fiscal, as the second Covid wave had punched holes in the P&L of the airline industry with IndiGo, considered one of the best-capitalised players, turning net worth negative in 1Q (April-June, 2021) with seven trailing quarters posting losses.

Rising optimism

There are clear indications in the Q2 results to show that the next quarter will be much better for the airline unless the third Covid wave sets in. Some of these are a good improvement in the RASK index of IndiGo. RASK (revenue available seat kilometres), which shows how much revenue each seat Km has generated, grew 32 per cent q-o-q led by a 12 per cent/20 per cent increase in PLFs (passenger load factor)/yields, while the CASK (cost for available seat km) index, which refers to the airline’s cost for every single available seat kilometre offered, declined 18.7 per cent q-o-q, on the back of increased capacity deployment.

“While the net loss for Q2 is more than for Q2 of the previous FY, it is less than half of the loss in Q1 this year. Statistics can be used to argue in favour of more than one viewpoint. But the airline’s brand image and customer satisfaction are evident in the ticket sales and, despite Air India’s re-entry into Indian airspace as a private airline, Indigo looks all set to lead the available seat kilometre race for some time to come,” Capt AK Sachdeva, the former COO of Go First said.

Added to this is the development with regard to the government permitting the airlines to operate 100 per cent domestic capacity, strong yield environment across markets and more air bubble arrangements aiding international operations, a note from Paarth Gala of research-based financial services’ company, Prabhudas Lilladhar pointed out.

The note said revenue booked/day in October this year reached January 2020 levels despite 20 per cent lower capacity deployment. With corporate travel expected to pick up post-Diwali(currently at 50 per cent of pre-covid) coupled with continued momentum from Tier 2/3 cities, IndiGo remains optimistic on the 2H demand environment and is focussing on deploying additional capacity in a responsible manner.

Low cash burn

The airline has also been able to reduce the daily cash burn by 39 per cent to ₹20 crore from ₹33.4 crore during the second quarter of the current fiscal, with the load factor touching 76 per cent. Gala, in his note, said that while the rising crude environment remains a worry, IndiGo continues to remain better placed than its peers and is likely to emerge stronger post-Covid given its superior balance sheet (₹6,300 crore free cash) with an option to further strengthen by ₹3,000 crore via QIP. “While some airlines rushed to cut salaries, supplier payments and everything in-between, Indigo took a more considered and longer-term view. This is now reflected in the confidence of financiers and suppliers in continued engagement with the airline. A strong balance sheet and good credit quality have helped as well,” Satyendra Pandey Managing Partner of aviation consultancy firm, AT-TV said. A combination of these factors means that IndiGo will be the first domestic airline to pull out of the pandemic, he noted.

Girish Linganna, an aviation consultant pointed out that IndiGo management made some smart choices during the pandemic, which has paid off. It converted its 10 aircrafts into freighters, which resulted in higher throughput. All domestic planes do carry in their belly some cargo with an average weight of six to eight tonnes, whereas the cargo planes can carry upto 20 tonnes per flight. As passenger revenues tanked during the lockdown, IndiGo and its rival ramped up their cargo operations due to high demand for transporting essential supplies.

“The sharp rise in the international cargo rates — from about $1,000 per tonne to $3,000 per tonne — during the lockdown has further improved the viability of cargo flights and this factor too benefitted to some extent,” Lingannna, the Managing Director of Indo-German company ADD Engineering India, which makes components for cruise missile BrahMos, and HAL’s Tejas aircraft said. The only worry for the airline apart from the possibility of a third wave is the rising crude oil prices. Barring these two concerns, IndiGo is expected to be home and dry in the next few quarters.

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