Singapore, Aug 26 (ANI): The weak liquidity position of some Indian airlines is likely to force them to curtail operations and allow stronger rivals to enhance their presence in the domestic aviation sector, Fitch Ratings said on Wednesday.
A higher market share apart from cost-cutting measures will allow airlines like market leader IndiGo to improve their performance after a sharp drop in earnings in 2Q 20 even though overall travel demand is unlikely to rebound quickly.
"We think IndiGo is well placed to further consolidate its market position in the coming months due to the liquidity pressure at rival airlines. Its share of domestic passengers has already risen to 60 per cent by July-end from 48 per cent in 1Q 20," said Fitch.
The Tata Group may also be consolidating its presence in the aviation sector with a bid for state-owned Air India. The group, which already has 51 per cent stakes in low-cost carrier AirAsia India and full-service airline Vistara, is evaluating whether to place a bid for Air India.
Earlier bidding rounds to privatise Air India, which was owned by the Tata group before nationalisation in 1953, have been unsuccessful. However, the terms for potential buyers have been improved in the latest round.
The government is offering 100 per cent divestment including Air India's real estate assets. The airline's large debt burden will also be split and 60 per cent will be retained by the government.
Fitch said IndiGo's position contrasts with that of SpiceJet, which had the second-largest domestic market share of 16 per cent as of July but is facing liquidity-related challenges.
SpiceJet's standby letter of credit facility remained unpaid for more than 30 days as of June-end and the company asked the market regulator for a delay in the reporting of its financial results to July from June-end.
Another carrier, Go Air which is privately held has been asked by the Airports Authority of India to clear its unpaid dues and pay upfront for utilising airport services.
Fitch said the fall in domestic air travel demand has been much sharper than the capacity cuts imposed for the industry. Domestic passenger traffic dropped by 82 per cent year-on-year in July and most airlines reported passenger load factors of 50 to 60 per cent compared with 80 to 90 per cent last year.
The pick-up in domestic passenger volume since May-end has been slow with traffic increasing by only 6 per cent in July from the previous month. "We think volume growth will remain in the single digits over the next few months as the pandemic continues to spread in India and people forego non-essential travel," said Fitch. (ANI)