IndiGo, SpiceJet: Lower costs, higher capacity utilisation to boost Q2 nos

Listed aviation players, InterGlobe Aviation (IndiGo) and SpiceJet, are expected to narrow their losses sequentially in the September quarter of FY21 (Q2FY21), as India gradually opened up its skies and unlocked the economy. Besides, mild appreciation of rupee during the quarter would aid non-fuel costs, say analysts.

According to industry reports, the early part of Q2 witnessed localised lockdowns, slot restrictions at major airports, and low consumer confidence due to rising incidence of Covid-19 cases. However, during the latter half, industry operated at 43-45 per cent of pre-Covid capacity in the month of September, which is twice the capacity seen in June.

In this backdrop, analysts at Prabhudas Lilladher believe IndiGo and SpiceJet could have operated at 34 per cent and 36.4 per cent of Q2FY20 capacity, respectively.

“Average number of domestic passengers per flight too improved from 90 per cent in June to 98 per cent in September. With loads on charters and Vande Bharat flights fairly strong, we expect IndiGo and SpiceJet to report sequential improvement of around 700bps in passenger load factors (PLFs) to 68.4 per cent and 76.1 per cent, respectively,” they noted in a sector preview report.

Given this, Prabhudas Lilladher expects yields – or average fare per passenger per mile -- to remain strong at 10 per cent and 7 per cent year-on-year (YoY) increase for IndiGo and SpiceJet, respectively.

Those at Elara Capital, on the other hand, see the yield improving 20 per cent YoY for the former and 25 per cent for the latter “on improvement in airfares as the minimum airfares capped by the government is higher than the airfares last year, along with increase in domestic capacity from 30 per cent of pre-Covid in Q1FY21 to 45 per cent in July and August, and 60 per cent in September”.

Loss to narrow

Aided by lower non-fuel costs, market share gain, and improved scale of operations, IndiGo may report lower net loss of Rs 1,610 crore in Q2FY21 compared with net loss of Rs 2,850 crore incurred in Q1FY21, noted Centrum Broking. On a yearly basis, the loss may still be higher from Rs 1,062 crore reported in Q2FY20.

“We expect average seat kilometers (ASKM) and revenue per kilometers (RPKM) to decline by 66.6 per cent and 73.8 per cent YoY, respectively with load factor of 65.4 per cent, down from 83.5 per cent in Q2FY20. We expect 7 per cent YoY decline in revenue per available seat kilometer (RASK) due to lower load factor and decline of 33.5 per cent YoY in unit fuel cost to Rs 0.9 due to 32 per cent YoY fall in aviation turbine fuel (ATF) prices,” the brokerage noted.

On the higher side, however, analysts at Kotak Institutional Equities expect the losses to come in at Rs 1,981.3 crore for the quarter under review, while Elara Capital has an optimistic estimate of Rs 690 crore.

As regards SpiceJet, analysts expect the loss to be anywhere between Rs150 crore and Rs 350 crore. The airline had reported a net loss of Rs 593 crore in Q1FY21 and Rs 639.3 crore in Q2FY20.

Rupee and oil benefit

Analysts at Centrum Broking note that Brent crude prices declined sharply by 30 per cent YoY, while domestic ATF prices declined 32 per cent YoY, leading to lower fuel costs. The rupee, too, has appreciated by 2 per cent sequentially against the USD in Q2FY21, which is expected to provide incremental relief in major non-fuel costs like maintenance and lease rentals.

“Overall, we expect CASK to reduce QoQ led by cost reduction measures undertaken by airlines and better absorption of fixed costs led by improved domestic air traffic,” they said in a recent report.