New Delhi: As government maintains calibrated approach in increasing allowable domestic capacity in line with covid situation in India and regulating fares in line with the cost of fuel, this should ensure profitable operations at a variable cost level for all low-cost carriers, broking firm ICICI Securities said in a report.
"This also ensures an operational parity between larger and smaller airlines. This fundamentally will lead to higher absolute losses for IndiGo compared to other airlines owing to its larger scale of operations and hence, larger fixed costs," the report said.
The firm predicted that continuous delay in international operations will remain another reason for losses. As such, current times could be right for entry of new airlines as heard in media considering the significantly weaker balance sheet for incumbent airlines.
"However, capacity control of existing airlines and allowance of new airline will be contrasting measures. Price regulation will also be a difficult exercise going ahead with increasing demand in festive season. Continued impact of covid in international sectors and rising fuel prices remain overhang in near term," added the report.
Meanwhile, SpiceJet on Tuesday announced the transferring of its cargo and logistics services on a slump sale basis along with all related assets and liabilities to its subsidiary SpiceXpress and Logistics Pvt. Limited subject to the approval of shareholders.
"The logistics business has been valued at Rs 2,555.7 crore based on an independent valuation exercise carried out by the company and the purchase consideration for the same shall be discharge by SpiceXpress by issuance of shares of SpiceExpress to SpiceJet, subject to all approvals as may be required," SpiceJet said in a statement.
Also Read: Govt hikes domestic airfare by 12.5%
Kinjal Shah, vice president of rating agency ICRA, said, "With effect from August 12, 2021, the Ministry of Civil Aviation has increased the permissible capacity deployment on domestic routes to 72.5% from the earlier 65%. This follows the increased passenger demand for air travel amidst content Covid-19 infections. This is visible in the 43% growth in domestic passenger traffic during the first 12 days of August 2021, compare to the first 12 days of July 2021."
"Furthermore, the MoCA has also allowed an increase of 10-13% on the minimum and maximum air-fare bands, with effect from August 12, 2021. Additionally, these fare caps are applicable for tickets booked for travel in the next 30 days of the date of booking. Any booking done for travel outside the 30-day window from the date of booking is not controlled by fare bands. This increase will allow airlines to partly offset the impact of increased aviation turbine fuel prices, thereby cushioning some impact on their losses," she added.
Kinjal Shah further said that in ICRA's view, the price increase may not materially impact bhi passenger traffic demand as in the current scenario, the travel is limited to only necessary travel, while both leisure and business travel have been curtailed due to various state-wide restrictions and the spread of the infections.
Weekly average daily fliers came in at 213k in the week ended 14 August, 2021 vs 227k in the week ended 7 August, 2021. For the week ended 14 August, 2021, average number of departures dipped to 1,846 vis-a-vis 1,937 in the prior week.
