Suspension of services for 2 months big blow to sector
MUMBAI: India Ratings & Research (Ind-Ra) has downgraded by one notch\ the low-cost carrier Go Airlines India Ltd (Go Air) long-term issuer rating to BBB+ from A- while maintaining it on rating watch negative (RWN).
The rating downgrade this time means the airline is on the last investment grade rating of BBB and another notch downgrade could land the airline in speculative grade.
Ind-Ra said the downgrade reflects decline in Go Air’s operating performance in FY20 and the likelihood of further deterioration in the same in FY21 along with a weakening of liquidity profile following the Covid-19 outbreak and associated lockdown.
“The rating watch negative reflects the lack of adequate clarity on Go Air’s liquidity profile, given the impact on the revenue profile due to low passenger traffic and the likelihood of staggered increase in passenger traffic over the near-term coupled with high fixed cost structure of the company.”
Services suspended for 2 months
The pandemic has had a significant impact on the aviation sector with business operations having been completely suspended for about two months across both domestic and international routes from March 25.
While the government allowed resumption of operations across domestic routes from May 25, airline operations across the international routes are yet to resume.
Moreover, with respect to the domestic routes, while the players have resumed operations, the business continues to face headwinds because of low passenger traffic.
For instance, the total passengers carried by the airlines across the domestic routes stood at 1.98 million in June 2020 against 11.99 million in the same month last year.
PLF declines from 90 pc to 56 pc year-on-year
Given the lower passenger traffic, the industry players have been operating at lower passenger load factor (PLF). Leading low-cost airlines in the country operated at a PLF of 56 to 68 per cent during June against 90 per cent in the same month last year.
Ind-Ra noted that while the PLF in June was higher than the levels of 44 to 57 per cent witnessed during May, it remains low. “The fears associated with the spread of Covid-19 and consequent need for social distancing are likely to continue the impact on the sector leaving the sector flying low.
Furthermore, said Ind-Ra, the imposition of lockdown by different state governments to contain the spread of Covid-19 will impact the passenger traffic, and hence, the business operations of the sector in the near term.