MUMBAI: The aviation industry is one of the worst-affected sectors globally owing to the covid-19 crisis. In India, domestic travel restrictions have been eased in a phased manner recently. Indeed, how demand pans out in the coming days would be a key factor in determining the fortunes of the sector.

In that backdrop, commentary from the InterGlobe Aviation Ltd’s management during its March quarter earnings call, scheduled on Tuesday evening, would be crucial. InterGlobe runs the IndiGo airline, India’s largest by market share. Investors will watch what IndiGo’s management says about the demand outlook. Further, any indications on fare movement would be keenly followed. Management commentary on costs such as aircraft lease rentals and employee costs would be eyed as well.

As far as the March quarter results are concerned, expectations are not high to begin with. The nationwide lockdown began on 25 March and IndiGo’s results would reflect that hit on the profits.

Revenues are expected to decline on a year-on-year basis. In a report on 4 April, Kotak Institutional Equities said, “Lower revenues are on account of Covid-19-related government mandated restrictions resulting in lower demand and fares.” The brokerage firm added, “High fixed costs lead to negative operating leverage and a profit before tax loss.”

A Bloomberg poll of analysts estimate the airline’s net loss at 1231 crore. Note that for the nine-month ended December, the company had reported a net profit of 625 crore.

IndiGo’s ample cash position makes it the best placed airline in the country, especially so in such trying times. At December-end, it had free cash worth 9400 crore. How that has changed would be important to note.

Outlook on capacity growth remains key. In its December quarter earnings presentation, IndiGo had said, for financial year 2021, capacity increase in available seat kilometres (ASKs) is expected to be around 20%.

IndiGo shares have nearly halved from their 52-week highs seen on 30 September on NSE. While the stock has increased by about 23% from its lows in March, the flight ahead would absolutely hinge on demand revival. Optimism remains low on this front. The general expectation is that passengers would shy away from travelling much due to the fear of contracting the virus. As such, the headwinds for the aviation sector in terms of subdued demand and pressure on yields may linger for some time in the near future. What offers some comfort is that crude oil prices are lower on a year-to-date basis and that offers respite on the fuel costs for airlines.

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