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Turbulent times for IndiGo and SpiceJet as they expect a worse Q1FY22 amid second wave of COVID-19

Turbulent times for IndiGo and SpiceJet are expected in Q1FY22. IndiGo's losses are expected to worsen in Q1FY22 compared to Q4FY21, according to analysts. With the second wave and the accompanying limitations, the recovery in passenger traffic that the aviation sector had been witnessing until February came to a halt.

InterGlobe Aviation Ltd, the parent company of IndiGo, India’s largest airline, released its June quarter (Q1FY22) results on Tuesday. Expectations aren’t high, which is understandable, and turbulent times for IndiGo and SpiceJet are expected in Q1FY22.

Turbulent times for IndiGo and SpiceJet, ahead

The reason is simple. The recovery in passenger traffic that the aviation sector was witnessing until February, came to a pause with the second wave and the ensuing restrictions. 

In addition, crude oil prices have risen slightly, increasing airline operational costs.

For context, average aviation turbine fuel (ATF) costs grew by about 97 percent year over year in Q1FY22, and by 12 percent compared to the March quarter (Q4FY21).

As a result, analysts predict IndiGo’s losses to expand in Q1FY22 compared to Q4FY21.

Turbulent times for IndiGo and SpiceJet, say reports

“Cash burn to deteriorate in 1QFY22E as fuel costs are significantly higher while traffic recovery seen until 4QFY21 came to a screeching halt,” said a report by Ambit Capital Pvt Ltd on 12 July.

IndiGo’s net loss is expected to rise to Rs 2110 crore in Q1FY22, according to the broker. IndiGo’s net loss in the Q4FY21 and Q1FY21 stood at Rs 1159 crore and Rs 2849 crore, respectively.

IndiGo indicated in its March quarter earnings conference call that “given the present performance degradation with the second wave of Covid-19, we estimate the cash burn to climb further in the June quarter.”

In the March quarter, the company’s average net cash burn jumped to Rs 19 crore per day, up from Rs 15 crore per day in the December quarter.

 IndiGo’s management commentary on demand conditions and the outlook for yields, a measure of airline pricing, should be keenly monitored by investors.

Meanwhile, SpiceJet Ltd, a smaller competitor, is projected to report poor results for Q1FY22.

“We expect IndiGo/SpiceJet each to report sequential dips in passenger load factors to 61 percent / 69.5 percent,” said Prabhudas Lilladher Pvt. Ltd in a report dated 7 July. Yields will very certainly stay under pressure”.

“Adjusting for the Boeing compensation (Rs 140 crore), SpiceJet to widen quarter-on-quarter from Rs 376 crore to Rs 650 crore,” the broker continues.

Also Read: Indigo imposes LWP, asks employees to take compulsory unpaid leave for 1.5 to 4 days

IndiGo in better position

IndiGo, as the market leader, is in a far better position, thanks to its reasonably healthy bank sheet. After all, it had Rs 7,100 crore with cash at the end of March. “(IndiGo) does not require a capital increase. The proposed QIP is more of a precautionary measure against the worst-case situation. SpiceJet needs a Rs 3200 crore capital injection to keep its operations afloat,” according to Ambit Capital.

IndiGo’s stock is trading 15% higher than its pre-covid highs in early 2020, which is unsurprising. SpiceJet’s stock, on the other hand, is down roughly 34% from its pre-covid highs in early 2020. Moving forward, investors will keep a careful eye on the improvement in traffic demand.

Written by: Sugyani Mohapatra


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