I use F&O put for hedging purpose where I have sold indigo futures (No of lots depending on how much I want my investing portfolio I wanna hedge ). Assuming if there is mass panic due to coronavirus spread in broad market indigo will fall more in % terms than my portfolio of stocks and thus giving me some protection.
1 Like
with the way Rs. has depreciated, how much of this impact their EBITDAR, given most of these lease rentals are payables in foreign currency. Does Indigo hedge some of these payments given most of their revenue is in local currency with payments in USD (mostly).
Disc. tracking. Indulge in Option writing (both calls and puts) of this stock! for now, am bearish given the general gloom!! ATF price correction would reduce CASK and probably make-up for the a reduced RASK
But as we saw on Monday, Indigo prices increased even though market dropped because of decrease in crude. Intuitively I agree, selling indigo is hedge against long term portfolio.
HSBC on aviation
COVID-19 has cut demand for air travel, but the impact is
softened by a lower oil price
Upgrade Indigo to Hold, cut TP to INR1,195 (from INR1,295); retain Buy on SpiceJet, lower TP to INR90.00 (INR110.50)
I sold off my few years old holding in Indigo. Had sold one part around 1800 levels earlier due to the promoter fights / CEO false show of confidence etc. and sold off the remaining on Monday. Around Rs 1000 levels is Lakshman-Rekha for the stock and if it breaks then stock can see much more declines. Most people are avoiding travel and this is bound to hit the company. They have responded by waiving off the charges for flight booking reschedule.
Don’t have the full report but HSBC came out with the following regarding aviation sector:
- COVID-19 creates significant uncertainty
- Impact of demand cut in air travel soften by lower oil prices
- Slot usage rules force airlines to operate flights even with lower load factors
- Upgrade Indigo to Hold from Reduce, cut price target to Rs1,195 from Rs 1,295
- Maintain buy on Spicejet, cut price target to Rs90 from Rs110.5
Found the below article which talks about the use it or lose it slot system:
2 Likes
Indigo is better placed than any other aviation companies, given its market leadership, lowest cost structure, and a healthier balance sheet.
indigo indicated it has witnessed 15 to 20% decline in daily bookings week over week. The company also said a sharp depreciation of the rupee will impact its dollar denominated liabilities, primarily operating leases which have been capitalized. Aircraft and engine rentals, as well as repair and maintenance - which are paid out in dollars - accounted for about a fifth of the cost for the airline in the December quarter. Further, borrowings in foreign currency (largely aircraft related debt) will also impact aviation companies.
Though a week rupee is an issue, the sharp fall in the price of crude oil more than offsets the negatives on the cost front. crude oil prices have corrected by over 30% or the past week and have cracked by 50% since the start of the calendar year. fuel is the single biggest cost for airlines, accounting for just over a third of their cost base. The gains for airline companies will start to accrue from April 1st, as the monthly reset of prices is already done for March.
On the demand front, the travel advisory on international routes would mean a fifth of the sector’s revenue will be at risk. Analysts believe that while some of the capacity is expected to be redeployed on domestic network, the week demand in local markets, too, will weigh on the airline companies.
Source business standard
Disclosure : I sold all my holding in Indigo yesterday so my views may be biased.
I agree Indigo is the best suited market player in the current scenario with strong BS and brand. But I have below 3-4 observations and someone can correct me if I’m wrong
-
The biggest impact will be the capacity addition which Indigo planned in the next 1 - 2 years. If I remember correctly, Indigo is supposed to take delivery of 60 A320 planes (20-30 % increase in capacity as per agreement with Airbus), which indigo cannot run profitably because of demand fall in the immediate 2 years and the below 2 factors which cap the revenue.
-
With this crisis, Aviation sector revenue will go down at least 30% in the near term(3-6 months) and may be 10% in the next 2 - 3 years. So my opinion is govts, central banks will propose bail out packages , tax holidays and other measures which help the industry as whole just like 2008 financial crisis where in banks / FIs offered bail outs, huge tax holidays.
-
Oil which is the key cost parameter to watch out will go down or capped to the say least due to ongoing geo political situation in the near term, which will make Indigo’s edge on low cost CSKM somewhat less impactful as all other players like spicejet, goair, vistara, air asia more or less offer at the same price point. So with cost being less deterministic in customer prefernce for a airline, comfort and experience play a big role. If this pans out as I suggested earlier, Indigo’s seats, entertainment are not having any edge. So most of the people with their raising income levels prefer airline like spicejet, vistara . Indigo needs to quickly move to upgrade their seats, entertainments propositions to customers especially medium/long distance flights like 6 hrs/12 hrs.
-
Customers leisure travel preferences might change in the long term regarding using air travel with corona virus emerging from Asia, most of the other countries avoiding Asia and Asians avoiding other countries. This may be short term to medium term impact, but I don’t bet much on this factor.
Request other to weight in the pros/cons on my above thesis. Stay safe and use this opportunity to more hygienic, cheerful, enjoy small moments in life. 
1 Like
I believe, in every crisis the strong players emerge stronger. Not sure if SpiceJet will survive as a company or how much a GoAir or Vistara can grow from now.
Indigo seems well positioned with enough liquidity, falling commodity prices.
Of course demand has crashed and it will show up in the results.
I have started buying small lots of Indigo. An SIP like @mylu may be.
6 Likes
Anyone following the IndiGo v.closely, do they have enough cash to withstand the current turbulence for the next 2 quarters? Since the COVID19 fear will take at least couple of quarters to subsidise and people to return to their normalcy.
Also, note that the expenses on maintaining the cleanliness also gonna increase by 2-3x, why? After 6 months, when the COVID19 plateaued, even if one headlines goes saying “Passenger on XYZ airline tests Positive”, the fear gonna grip and reflects in their expenses, margins, profits and what not.
1 Like
i was checking how much cash they have to withstand this turmoil.
could someone tell me what is “restricted cash” ?
is this cash not usable when required ?
As of December 2019, they have 20000cr of cash of which 10500cr is restricted cash.
1 Like
A nice infographic of which Indian airlines can survive a complete shutdown and for how long.
1 Like
How much is their daily burn right now, given everything is grounded.
Does anyone have data on this.
Also, if they do start the flights and utilisation doesn’t pickup, how much will they lose.
I think airline will have to bear more pain - Not optimistic to open aviation even after 3rd May…COVID-19 impact getting more severe for airlines!
The weaker players will loose planes & capacity while the ones with a stronger balance sheet will gain the most!
Very Old News
even before the Ipo came. Large payouts made the net worth go negative.
Did the management give exit to a large player ?
Disclosure :- Not Invested / Tracking