Over the last two days, there have been two positive news on the airline profitability front. Delta Air Lines – one of the top three US carriers reported a profit of $652 million in the second quarter of the calendar year. This is the first profit for the airline since the pandemic began and also a sign that airline recovery could be on the horizon, especially when significant chunk of the population gets vaccinated and is able to travel without restrictions.
The airline further added in its investor call that they are not seeing a dip in booking due to the new variants of the virus. Leisure travel has recovered to pre-COVID levels as per the carrier and there is significant recovery in Business travel. There would be more insights to the US market in coming days as United Airlines, American Airlines, jetBlue and Southwest announce their results. United has already indicated that it has inched towards profitability.
While United placed an order with Boeing and Airbus for new jets, Delta has decided to acquire a mix of B737s (not MAX) and A350s from the leasing market and both carriers are looking for expansion beyond the current uncertainty.
While the recovery in the US has been fast, profitability has also returned closer home. Air Astana group – which operates flag carrier Air Astana and Low Cost Carrier FlyArystan, has reported a profit of $ 4.9 million for the first half of calendar year 2021. The airline had recorded a loss of $66.2 million for the same period last year. The LCC FlyArystan was launched in May 2019 and has had very limited time to stabilize before being hit by the pandemic. With borders closed and most markets affected, this has largely been due to the internal travel in Kazakhstan. The airline converted one of its B767 to carry cargo and has been operating on multiple routes, including to New Delhi. Air Astana also launched flights to Maldives to cater to the growing holiday crowd from Kazakhstan.
Losses by Indian carriers
IndiGo – India’s largest carrier by fleet and domestic market share, reported a loss of INR 1147 crore for the Jan – Mar quarter. Spicejet – India’s second largest carrier by domestic market share, reported a loss of INR 235 crore for the Jan – Mar quarter. Only two airlines in India are listed at the moment. Both are yet to declare the results for the Apr – Jun quarter.
Indian carriers have been hit hard by the second wave of COVID-19 which saw daily cases rise to 4,00,000 per day and multiple restrictions being enforced at state level. Coupled with a requirement of negative RT-PCR report, the slump in air traffic was sudden and sharp. Airlines also have to make do with a cap on capacity which is controlled by the government and a floor and ceiling price cap for the air fares – again controlled by the government.
At least three carriers – IndiGo, Spicejet and GoFirst are looking to raise cash while national carrier Air India is up for privatization.
Challenges in India
Delta Air Lines has received federal bailout in the USA. The carrier has received $1.5 billion in federal stimulus over two tranches. There has not been any bailouts in Indian aviation and little has been done to have a direct impact on airlines’ balance sheet. Sliding rupee and climbing oil will only act as a double whammy for airlines and make profits elusive.
The recovery in passenger numbers reached 73.77% of pre-COVID levels at the end of February and has never returned anywhere close since then. Currently the daily passenger numbers are yet to cross 50% of pre-COVID levels and capacity deployed averages at 44.5% of pre-COVID levels even when government has allowed 65%.
With COVID numbers increasing again – it is difficult to tell if this is the beginning of the third wave or a long tail of the second one. Either of it could lead to more restrictions being enforced and push profitability further away for carriers in India.