In India, airlines have been largely left to fend for themselves. This begs the question of how they have managed to survive so far, especially as some of them had no cash reserves to speak of before the crisis.

“Globally, all airlines are getting some or the other form of leeway or moratorium on the payment of lease rentals, and Indian airlines, too, are likely to receive this. Employee costs have been curtailed through salary cuts or at worst, job cuts,” said Mahantesh Sabarad, head of retail research, SBICAP Securities Ltd.

In an emailed response, SpiceJet Ltd said, “We have restructured our lease fixed costs and continue to do so to align the same with our reduced operations.” Additionally, the airline has restructured its pay structure to align with operations where employees are paid according to the work hours contributed while maintaining certain basic thresholds. Besides, SpiceJet’s cargo operations have increased, which helps cut overall losses to that extent.

IndiGo won’t be paying dividends in FY21 to conserve liquidity. It has put discretionary expenses on hold, deferred certain capital expenditure and is cutting employee costs.

And according to a Business Standard report, Air India has begun a cost-cutting drive and will send around 600 staff on furlough in the first such move by the state-owned carrier.

But cost cuts can help only to a limited extent, especially when revenues have evaporated. While firms haven’t been forthright about it, it appears that they would have received some liquidity support from the banking system. Of course, this would be conditional, and with certain limits, which explains the drastic cost cuts.

But as analysts at Goldman Sachs said in a report this month, consolidation in airlines is imminent. News reports already suggest the Tata group may buy out Air Asia’s stake in their Indian joint venture. “This opens up a potential for merging slots with Vistara and Tata group to focus on full-service and reduce a low-cost competitor in India (7% market share),” analysts at Credit Suisse Securities (India) Pvt. Ltd said in a 10 July note to clients.

As it turns out, the Tata group may be involved in another consolidation move, given that they are so far the only bidder in the fray for Air India.

Analysts also say that firms such as IndiGo with a robust balance sheet will be better placed in the current environment.

On the costs front, while crude prices are low, airlines don’t gain much, owing to the reduced scale of operations.

Crisil Research said the profit margin of airlines would narrow, and move in sync with fuel prices for the first time in FY21.

Little wonder, shares of IndiGo and SpiceJet have declined 33% and 49% since their respective pre-covid highs in February. With no operations for most of the June quarter, the results are expected to be a disaster. For IndiGo, analysts at Kotak Institutional Equities estimate a nearly 90% year-on-year drop in revenue and a net loss of ₹2,401 crore. After adding back depreciation, the broker’s estimates suggest a cash loss of about ₹1,400 crore. Centrum Broking Ltd estimates SpiceJet’s June quarter net loss at ₹1,011 crore.

IndiGo enjoys an envious cash position, while SpiceJet’s last reported numbers suggest it had hardly any cash to speak of. In end-March, IndiGo’s total cash was ₹20,376.9 crore, out of which free cash was ₹8,928.1 crore and restricted cash was ₹11,448.8 crore.

SpiceJet hasn’t released its March quarter earnings, which makes it challenging to evaluate its financial health.

To be sure, IndiGo has plenty of cash but if demand doesn’t improve, investors should be prepared for a disappointment. “Even with large cash reserves, IndiGo will have to worry if losses persist even after Q1FY21. Estimates peg IndiGo’s profit before tax breakeven at a passenger load factor of 67-73%. In the coming quarters, utilization won’t be that much, as demand is really low,” said SBICAP’s Sabarad.

“(The) industry needs support to weather near term turbulence,” said Credit Suisse analysts.

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