airlines pandemic Archives

The Story

As per the reports, IndiGo is planning to buy engines when the Covid-19 has paralysed the aviation sector globally. India’s biggest airline, IndiGo, is betting on a robust future of the industry. They are in talks with Pratt & Whitney and CFM International Inc. to buy its next batch of engines.

Pratt & Whitney and CFM International Inc. are two rival manufacturers. Reportedly, the new set of order for jet engines power around 150 new Airbus SE A320neo jets. This new deal could be worth around $10.7 billion. There is no given timeline up to which this deal can conclude.

Rumours of this big investment by an airline are surprising in these times. Last year, IndiGo placed a $20 billion (Rs 1.4 lakh crore) order for LEAP-1A engines. This was the largest ever single-engine order in history which covered 280 planes. Airline and tourism industry are the two most severely hit industries during the pandemic. Several airlines around the globe have either deferred or cancelled hundreds of plane orders due to the Coronavirus slump. To understand how badly the aviation sector has been hit by Covid-19, click here. Yet, IndiGo is rumoured to make another big investment. Is that feasible for the company?

Why now?

Any airlines investing such heavily during the pandemic does raise the question “why now?” The fears of coronavirus are still present, if not more than earlier. Governments are easing restrictions but with rising cases, another shutdown like that in Europe cannot be ruled out. IndiGo, like every other airline, has been impacted massively. Yet, India’s biggest airline wants to take this opportunity and solidify its dominance in the Indian market.

All of Indigo’s competitors are equally hurt, if not more badly. Overall market conditions also give them an opportunity to buy materials at a lower cost. Thus, IndiGo has no reason to shy away from any lucrative deal. India has one of the world’s fastest-growing aviation market. A low-cost carrier like IndiGo competes on a pricing model to attract more customers. A higher passenger load factor helps them to improve their top and bottom line. As compared to other Indian airlines, IndiGo has robust cash support. In their Q2 FY21 results, the airline reported a $2.4 billion (~Rs 18,000 crores) of cash and cash equivalents. This number was higher than $1.9 billion they reported in the same quarter previous year.

Are People Confident with Flying Again?

Indian government suspended domestic and international flight operations in the last week of March. From the last week of May, a limited number of domestic airlines were given a nod to operate. But again, with several restrictions from both the central and state governments. According to DGCA (Directorate General of Civil Aviation), air traffic plummeted by 85% year-on-year in June 2020.

Like other airlines, IndiGo has to announce a pay cut to restrict their expenses. In June, the airline asked some of its staff to take mandatory leave without pay (LWP) for 1.5 to 5 days. Next month, pilots were told to take an additional 5.5 days of LWP. They also laid off 10% of staff and cut the salaries of its senior employees. With the recent uptick in demand for air travel, Indigo has reduced the 10 days of LWP in July to 3 days in November.

The data of DGCA for September showed 39.4 lakh people taking the air route for domestic travel. It was a significant increase from 28.3 lakh people reported in August. Keeping the change in the mind, the government has also airlines to operate at 65% of their capacity. Earlier, they were restricted to operate at a mere 45% of their capacity.

Even in the pre-Covid times, IndiGo had a substantial market share in the domestic segment. The September data showed that their grip became stronger in the domestic market. They had a market share of 48.1% by the end of March 2020. Currently, they have a market share of 58.8%. At the same time, Air India, Air Asia, Vistara and SpiceJet all have faced a reduction in market share.

In these tricky times, do you think IndiGo should invest in their growth or should they be more cautious and focus on just survival?

1. U.S. Stocks Slump After Tech Earnings Underwhelm

U.S. stocks slumped after earnings from the biggest tech companies disappointed investors concerned a slowing economy will damp profit. The Nasdaq 100 led losses among major U.S. stock gauges. In Europe, equities were mixed. Tech stocks also faltered. The tech slump, coming after an unprecedented run higher this year, is adding to volatility that’s likely to remain elevated heading into next week’s U.S. election. Global equities are on course for the worst weekly decline since March as lockdown measures in some countries and the lack of an agreement on U.S. stimulus dent sentiment.

The S&P 500 Index decreased 0.7% as of early morning New York time.

The Nasdaq 100 Index dropped 1.4%.

The Stoxx Europe 600 Index was little changed.

The MSCI Asia Pacific Index sank 1.5%.

2. Eurozone GDP up 12.7% in Q3, biggest-ever quarterly rise

Eurozone output soared by 12.7% in the third quarter, its sharpest recorded increase, as the bloc bounced back from the depths of the coronavirus lockdown, the EU’s statistics agency Eurostat said Friday. But, despite the rebound, total gross domestic product in the 19-country zone is still 4.3% down on the third quarter of 2019, while unemployment numbers for September and the inflation estimate for October remained flat.

3. U.S. Tech Giants – Apple, Facebook, Amazon – beat expectations

Apple beats expectations, but shares slip after the company reported iPhone sales that missed Wall Street estimates and a slump in revenue from China. Sales of Macs and Services reached all-time highs in this quarter.

Facebook beats revenue estimates by $1.6bn. Facebook’s monthly active users rose to 2.74 billion, but the company warned of a tougher 2021.
Amazon.com on Thursday reported record profits for the second quarter in a row and forecast a jump in holiday sales, as consumers continued to shop more online during the novel coronavirus pandemic.

4. Hong Kong Economy Shows First Signs of Revival Since Protests Began

Hong Kong’s economy showed the first signs of emerging from a crippling recession sparked by political unrest last year and deepened by the global pandemic. GDP declined 3.4% in the third quarter from a year earlier, which was better than the median estimate of a 5.6% contraction. On a quarter-on-quarter basis, GDP rose 3%. This marks the first time the quarter-on-quarter measure has risen since before the start of anti-government protests last year, as a third wave of virus infections subsided last month.

5. Singapore Overtakes Thailand to Become Asia’s Worst Stock Market

Singapore stocks took a beating this week amid the twin uncertainties of the U.S. election and the worsening pandemic in the West, overtaking Thailand to become Asia’s worst equity market this year, taking the 2020 decline so far to 25%, compared with a fractionally smaller loss for Thailand’s SET index. The city-state’s index, which relies heavily on exports, is down about 4.3% this week, among Asia’s worst performances. A recovery in the Southeast Asian nation’s stocks from the market plunge triggered by the pandemic has been hampered by the economy’s integration with global trade and supply chains, and a lack of technology shares in the index. More than 80% of Singapore’s benchmark is made up of cyclical equities — the most among regional peers.

6. German economy will shrink 5.5% this year

Europe’s largest economy will likely shrink by 5.5% this year, the German Economy Ministry said on Friday, before expanding by 4.4% in 2021. The German economy has taken a thrashing from the coronavirus pandemic this year and a circuit-breaker lockdown is due to come into effect nationwide on Monday in a bid to curb a surge in infections. The ministry’s new 2020 forecast would still mean Germany is in one of the worst recessions of the post-World War Two era this year but means it is not faring as badly as during the 2009 global financial crisis.

7. U.K. Accelerates Reviews of Pfizer and Astra-Oxford Vaccines

The U.K.’s drug regulator has started accelerated reviews of Covid-19 vaccines under development from Pfizer and AstraZeneca as Britain gets ready to approve the first successful shot as quickly as possible. The U.K. Medicines and Healthcare Products Regulatory Agency started a so-called rolling review of the Pfizer vaccine in recent weeks. The agency is also conducting an expedited review of Astra’s vaccine, which the company is co-developing with the University of Oxford. Rolling reviews allow regulators to see clinical data in real time and have discussions with companies about ongoing trials and manufacturing processes so that approvals can be granted more quickly.

8. Exxon Mobil to lay off 1,900 US employees

Exxon Mobil Corp said on Thursday it will lay off about 1,900 employees in the United States as the COVID-19 pandemic batters energy demand and prices. Exxon was once the largest US publicly-traded company but has been cutting costs due to a collapse in oil demand and ill-timed bets on new oil-fields and expansions. It has promised to shed more than $10bn this year in project spending and cut operating expenses by 15%. The company lost nearly $1.7bn in the first six months of the year and is expected to post another quarterly loss on Friday. Exxon said the job cuts, part of a global reorganisation, will come mainly from its Houston, Texas office and will include voluntary and involuntary cuts.

9. Air France-KLM warns of bigger losses amid lockdowns

Air France-KLM unveiled a $1.24 billion (INR 9200 cr) quarterly operating loss and warned of worse to come as a resurgent coronavirus brings new travel curbs. The Franco-Dutch airline group reported a 67% drop in Q3 revenue, as France returned to full lockdown for at least a month. New COVID-19 outbreaks pose a threat to network airlines already weakened by the crisis and long-haul travel collapse.

10. Japan Airlines forecasts over $2.3 billion annual net loss as pandemic grounds air travel

Japan Airlines said it had forecast an annual net loss of more than $2.3 billion (INR 17,100 cr) after the coronavirus pandemic grounded air travel around the world. The air carrier is Japan’s second-largest by market share. It did not issue annual forecasts when it published first-quarter earnings in August, citing deep uncertainty surrounding the pandemic. The company reported a 74% reduction in sales and plans to slash 3,500 jobs through a hiring freeze, while also deciding to stop hiring for next year.