IndiGo’s net loss brings into focus the plight of airlines

Market leader IndiGo’s wider quarterly loss and weak annual performance highlight the deep financial crisis facing the Indian aviation industry. The deadly second wave of the Covid-19 pandemic that halted a revival in the market is waning, but a possible third wave is another threat. But for rapid vaccination of the population and a weaker third wave, several in the aviation industry face an irreversible slump in fortunes.

Interglobe Aviation, which runs the airline IndiGo, said on Saturday that its net loss widened to ₹1,147 crore in the January-March quarter from ₹871 crore a year earlier, as the second deadly wave of Covid-19 battered demand.

The airline’s revenue for the quarter fell 25% to ₹6,223 crore.

“This has been a very difficult year with our revenues slumping hard due to Covid, showing some signs of recovery during the period December to February and then slumping again with the second wave of the Covid,” said the airline’s CEO, Ronojoy Dutta.

“While we have seen a sharp decline in revenues in March through May, we are encouraged by the modest revenue improvements starting last week of May and continuing through June. We see this pandemic as a period of great trial for both our shareholders and our employees,” he added.

For the year ended March 31, the airline plunged to a net loss of ₹5,806 crore from a net profit of ₹233 crore the previous fiscal year. As of March 31, it had a cash balance of ₹18,569 crore and total debt of ₹29,860 crore.

In a recent note, Sydney-based CAPA-Centre for Aviation estimated that Indian airlines would lose $4.1 billion in the ongoing fiscal 2022, similar to the loss in FY21. Full-service carriers are expected to contribute $2.1 billion to the loss while the share of low-cost carriers is estimated at $2 billion, it said.

“The projected losses could rise if necessary recapitalisation comes in the form of debt, for which borrowing costs will need to be included. At this stage, it is not known how recapitalisation will be funded.”

Air India and IndiGo combined will represent around $4.5 billion of the about $8 billion of losses for FY21 and FY22 combined, it said in the note.

“Airlines are estimated to need closer to $5 billion of recapitalisation in FY2022 just to survive, including requirements generated through the course of FY2021. Out of this, it is estimated that around $1.1 billion is in the pipeline in the form of IPOs, QIPs and other instruments,” CAPA said.

In an April note, Crisil said there could be a gradual improvement.

“Lower domestic air traffic compared with pre-pandemic levels, together with high fuel prices and only a gradual recovery in international operations, mean airlines will continue to log net losses, though this will be 35-40% below the fiscal 2021 mark, at ₹9,500 crore-10,000 crore,” it said.