Connect with us

Business

Aviation sector enters rough patch

Local air travel in India is likely to crash from 14 crore domestic passengers in 2019-20 to around 8-9 crore in the next financial year, says a recent report. A coordinated government and industry action is needed if the catastrophe is to be avoided.

Published

on

Aviation sector

With over 70% of the world’s fleet of 24,000 active commercial aircraft in mothballs, it is going to be a heartbreakingly costly effort to get them back in the air. Worse, each passing day only piles on more pressure and makes grounded aircraft less airworthy.

On this bleak canvas painting any scenario is predicated to the passenger mind-set and the thorough brainwashing these past few weeks that has been globally given to the potential flier that getting on a plane is not safe for Covid-19. While at-
tractive ticket costs and piled on privileges might ginger up some enthusiasm, it is not going to be easy.

In the interim as the industry trims its overheads, aircraft and carriers alike are inclined to lie down. It is a fact that half the world’s airlines in most regions only
have two to three months of cash to cover their operations. According to IATA bankruptcy has a hideous grin of anticipation writ large on its face. Granted, there is a wide variation in the fiscal strength of carriers.

The best airlines generate more profits and have stronger balance sheets than they did in the crisis of 2008, but by the same token the rest are the financial walking wounded and pull the industry back. We speak of a coordinated government and industry action that is needed — and needed now — if the catastrophe is to be avoided or at least softened in its impact. Surviving is not enough. Compromising service and safety and cutting corners are all potential recipes for disaster.

Just saying that the ATM (Air Transport Management) community needs to work together to strategies how the airline industry will restart again is also not enough. While it cannot take government fiscal injections for granted, seeking soft loans will be on the cards. Private equity will also have to be considered. It is a cruel fact but downsizing fleet and staff and even airports and assets will be necessary. There is also an official attitude issue.

Each time there is a new government recommendation it is to discourage flying. Demand is drying up in ways that are completely unprecedented. Normality is not yet on the horizon. And even when the ban is lifted there could be new protocols that could make ticketing prohibitively expensive — paramount among them the safe distancing dictate that could make the load factor a parody.

The magnitude of the unfolding trauma for India’s airlines is far too severe to ignore. The “Covid-19 & the State of the Indian Aviation Industry” report, released by Capa India recently, reveals that local air travel in the country will likely crash from 14 crore domestic passengers in 2019-20 to around 8-9 crore in the next financial year (2020-21). A not so generous calculation would see the need for $2.6 billion just to jumpstart the industry in India. At least 200 of the 670-odd aircraft in the Indian commercial skies will be technically axed as schedules are truncated.

The Capa India report had some more dire predictions to make and it is necessary to confront them rather than wish them away. The most significant ones among them include:
(A) The Indian aviation sector is likely to shrink significantly, even if some of the vulnerable airlines manage to survive. The trick lies in knowing if Indian aviation has any sugar daddies who will invest in the sector knowing profit is a long time coming. An absence of liquidity is a major issue.

Ironically, IATA chief economist Brian Pierce made a projection that now sounds like a travesty: Moreover, as the world’s largest democracy with a population of more than 1.3 billion citizens, India’s potential for further growth and industry development is very clear. Indeed, we expect air passenger numbers to, from and within India, increase by 3.3-times over the next 20 years, to more than 500 million passenger journeys per year.

This significant expansion is expected to be underpinned by a trebling in the proportion of middle-class households and further increases in time-saving options for air passengers. This highlights the important role aviation can play in connecting the country — both internally and with the rest of the world.

This strong growth outlook for air passenger demand will see India overtake Germany, Japan, Spain, and the UK within the next 10 years to become the world’s third-largest air passenger market. These are exciting times for the air transport industry in India. With international traffic expected to fall from approximately 70 million in FY 2020 to 35-40 million in FY 2021, and possibly lower depending on several factors, India will lose at least 30% of its 160 million passengers, if not more.

Capa India has cautiously added that these were only initial estimates and that these would be revised as the situation becomes clearer. Consumer sentiment jolted by the virus outbreak, government curbs on air travel, and uncertainty over when they would be relaxed will severely hit airlines and allied industries. Domestic air passenger traffic is expected to drop from an estimated 140 million in FY20 to around 80-90 million in FY21.

International traffic is expected to almost halve from around 70 million in FY20 to 35-40 million in FY21, Capa India said in the report. “Indian carriers will require a domestic fleet of around 300- 325 aircraft from October 2020 onwards, and an international fleet of 100-125 aircraft,” the report said. So much for the double-digit growth.

Bigger players like Vistara, SpiceJet, Air India, GoAir, and IndiGo are staring at deteriorating balance sheets. As per the recent report by the International Air Transport Association (IATA), the Covid-19 crisis is expected to impact over
29 lakh (2,932,900 to be precise) jobs in India’s aviation sector.

That is a very large chunk of talent, expertise, and experience and will call for multi-tasking, something no airline likes to engage in. The negative impact if the ban is lifted in June on airlines’ revenue would be $11.221 billion and that is not small change. The International Air Transport Association (IATA) has released its latest forecast.

It predicts that half of all airline business will disappear this year, with full-year passenger revenues falling 55 per cent compared with 2019, with traffic falling 48 per cent. CEO Alexandre de Juniac summed it up as “catastrophic”.
Emphasising the effect on the wider economy, de Juniac said: “If airlines lose one job, another 24 disappear somewhere in the value chain. That was behind our analysis last week when we said that some 25 million jobs are at risk”.

India won’t allow commercial flights to operate until it is confident that the coronavirus outbreak is under control, Union Aviation Minister Hardeep Puri said recently. The country’s cash-strapped airlines can only stand and wait
to serve.

Continue Reading
Click to comment

Leave a Reply

Your email address will not be published. Required fields are marked *