Tuesday, November 02, 2021

Aviation segment looking up as domestic traffic shows growth

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. 

02/11/21 Abhinav Singh/The Week

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