IndiGo shows strong post-Covid recovery
IndiGo is expected to be the first national airline to recover from the ravages of the pandemic and emerge stronger as second quarter results (July-September 2021) clearly show there has been progress after the second wave of Covid .
IndiGo’s takeover will bring good news for other domestic carriers as the airline, with a market share of around 58 percent, sets the tone for the industry. The past few months have also been marked by two major developments, with Tata Sons hiring government-owned Air India and one of the country’s leading business tycoons, Rakesh Jhunjhunwala, announcing the launch of his airline, Akasa Air, infusing confidence in an industry best known for its failures. only success stories.
Another major factor that should help the recovery is the increase in the number of vaccinations and the relaxation of testing standards by several states.
The scenario was quite different in the first quarter of the current fiscal year, as the second wave of Covid drilled holes in the airline industry’s income statement with IndiGo, considered one of the most significant players. better capitalized, becoming negative net worth in the first quarter (April- June 2021) with the last seven quarters recording losses.
Optimism on the rise
There are clear indications in the second quarter results to show that the next quarter will be much better for the airline unless the third wave of Covid sets in. Some of them are a good improvement on IndiGo’s RASK index. RASK (available seat-kilometer revenue), which shows how much revenue each seat-km generated, increased 32% quarter-on-quarter, driven by a 12% / 20% increase in PLF (passenger load factor) / yields, while CASK (cost per available seat-kilometer), which refers to the airline’s cost for each available seat-kilometer offered, fell 18.7% quarter-on-quarter, due to a increased deployment of capacity.
“While the second quarter net loss is greater than the second quarter last year, it is less than half of the loss in the first quarter of this year. Statistics can be used to argue for more than one point of view. But the airline’s branding and customer satisfaction is evident in ticket sales and despite Air India returning to Indian airspace as a private airline, Indigo appears poised to lead. the race for available seat kilometers for some time to come. Sachdeva, the former COO of Go First said.
Added to this is the development with regard to government allowing airlines to operate 100% domestic capacity, a high performance environment in all markets and more air bubble deals helping international operations. , a note from the research-based financial services firm’s Paarth Gala, Prabhudas Lilladhar pointed out.
The note states that the recorded revenue / day in October of this year reached January 2020 levels despite a 20% lower capacity deployment. With a pick-up in business travel after Diwali (currently 50% pre-covid) coupled with continued momentum in Tier 2/3 cities, IndiGo remains optimistic about the 2H demand environment and focuses on the responsible deployment of additional capacity. manner.
Low money consumption
The airline was also able to reduce daily cash consumption by 39% to 20 crore yen from 33.4 crore yen in the second quarter of the current fiscal year, with a load factor reaching 76%. . Gala, in his memo, said that while the rising crude environment remains a concern, IndiGo continues to remain better positioned than its peers and is expected to emerge stronger after Covid given its superior balance sheet (6,300 crore in cash free) with a further boost option of 3,000 crore via QIP. “As some airlines have rushed to cut wages, supplier payments and everything in between, Indigo has taken a more thoughtful, longer-term view. This is now reflected in the confidence of financiers and suppliers in the continued engagement with the airline. A strong balance sheet and good credit standing have also helped, ”said Satyendra Pandey, managing partner of aviation consulting firm AT-TV. A combination of these factors means IndiGo will be the first national airline to pull out of the pandemic, he noted.
Girish Linganna, an aviation consultant, pointed out that IndiGo management made smart choices during the pandemic, which have paid off. He converted his 10 planes into freighters, resulting in higher throughput. All domestic planes carry an average cargo of six to eight tons in their bellies, while cargo planes can carry up to 20 tons per flight. As passenger incomes declined during the lockdown, IndiGo and its rival stepped up their freight operations due to the high demand for transporting essential supplies.
“The sharp increase in international freight rates – from around $ 1,000 per tonne to $ 3,000 per tonne – during the lockdown further improved the viability of freight flights and this factor also benefited to some extent,” Lingannna , Managing Director of Indo-German, said ADD Engineering India, which manufactures components for the BrahMos cruise missile, and HAL’s Tejas aircraft. The only concern for the airline, other than the possibility of a third wave, is rising crude oil prices. These two concerns aside, IndiGo should be home and dry for the next few quarters.