Aviation industry under pressure, SpiceJet worst hit
The world has come to a standstill to avoid the spread of deadly Coronavirus. The shutdown in all the industries is bound to be serious due to a deep cut in the consumption everywhere. The aviation sector is the one, which is worst hit among all other industries.
Indian aviation industry is led by two majors-InterGlobe Aviation (IndiGo) and SpiceJet after the debacle of Jet Airways. The sell-off in the equity markets is somewhat led by these two majors and particularly by SpiceJet. Since the beginning of January 2020, the shares of SpiceJet tumbled 71 per cent till March 23, 2020. On the other hand, InterGlobe Aviation lost 36 per cent of its market value during this period.
||Price return from 01/01/20 to 23/03/20
One of the major reasons for difference in intensity of the fall is a key difference between financial and operational stability. By the end of second quarter of the current fiscal, IndiGo had cash equivalents of Rs 9,675.95 crore and a total liability of Rs 24,436.82 crore. The cash to total liability ratio stood at 39.60 per cent as against just 1.36 per cent of SpiceJet.
Indian Government has cancelled flights for destinations like Afghanistan, Philippines and Malaysia with immediate effect since March 17, 2020, even for Indian citizens. The government has also grounded all the domestic flights from March 25 to March 31. Such a situation has put airlines on the verge of collapse in the long-run. IndiGo already has cut 25 per cent salaries of all the employees. With such a low margin for any cuts in the input costs, SpiceJet may face much worse time going ahead, till there’s any respite from the government.
According to Centre for Aviation (CAPA), the demand is likely to fall nearly 50 per cent in the coming months. This will lead most airlines collapsing by May without any substantial government intervention.
On the other hand, a lower crude oil price is likely to benefit the aviation companies as they have reduced the fare to pass on the benefit as well as to boost the demand. However, grounding of the domestic and international flights would weigh on the benefit of lower crude oil prices.