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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.

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Aviation sector
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.

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Salon business takes a massive hit in corona times

The industry, which depends on personal touch and human interaction, is fighting for survival.

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From Anushka Sharma giving a haircut to hubby Virat Kohli to Tapsee Pannu chopping off her own hair, we’ve seen several celebs indulging in DIY personal care as the entire grooming industry has been under lockdown for the past few weeks amid the rising number of coronavirus cases. And now even though the government has permitted the opening of standalone beauty parlours and salons, the industry is far from the road to recovery. The predicament of the industry lies in the deeprooted doubts prevailing in the customer’s mind regarding their own safety. “I know the next six months won’t be good for the industry. The client is scared and is apprehensive to come to the parlour or salon. We need to work on that first, we need to work on client confidence which can only happen through education. It will take a lot of time.

We all have to work on it creating trust,” says Jawed Habib, India’s salon czar and chairperson of Jawed Habib Hair & Beauty Limited. From basic grooming like a haircut and facial to botox, nail and hair extensions, the entire gamut of the grooming industry has changed drastically. The industry, which is pegged at crores of rupees, has been terribly hit due to Covid-19. The industry, which depends on personal touch and human interaction, is bracing for the aftermath of the lockdown. “I think the big challenge is what to do right now, and what we need to do when the lockdown is lifted. What our sanitisation needs will be? What will be nontouch makeovers? We need to think how we can bring digital and AI into all of this. The morale of the people is down which makes it very stressful,” says Sameer Modi, founder and MD of the popular cosmetic brand Colour Bar. With everything connected to our social media handles via technology, it’s not just the owners of these salons and companies who are feeling the lockdown blues but also make-up and beauty influencers, as the advertisements have reduced drastically on their platforms.

“Current situation is bad; the brand budgets have gone down. The budgets have been slashed as there are no delivery happening. Brands mainly want to collaborate for brand awareness to the audience. There won’t be an ROI as no purchase will be made. Some brands are doing online marketing so that the product is out there in the buyers’ mind,” says Shilini Samuel, a digital creator. Many digital influencers are, however, trying to stay positive during the pandemic by creating educational content online. “I have started doing online makeup classes and teaching makeup every day. That way I can help people with my skills and motivate them as much as I can. I keep interacting with my brands and team members to come up with solutions. Right now, we don’t know the situation we are in and we don’t know what’s going to happen, but we can try to do what’s best,” says Saachi Bhasin Daga, an online beauty influencer. With the government giving a green signal to standalone salons and parlours, the industry is slowly attempting to revive itself. The first and the foremost priority for the industry seems to be winning the trust of the customer back.

“We will have to work with less manpower and make sure they wear sanitised gear and are safe. We were also planning to hire people who come from non-contaminated zones. We have to work on our social media skills and make sure people coming to us know it’s a safe place,” says Dr Jamuna Pai, celebrity skincare and wellness expert and founder of Skinlabs Clinic. Dr. Blossom Kochar, chairperson, Blossom Kochar Group of Companies, also believes that the most important thing is to build the trust. “People do need these things and they will finally come out. But for that sanitisation and hygiene are going to be very important.” Though the hardesthit in the industry have been the small salons and barbers who had to keep the shutters down from weeks and are now seeing a drastic reduction is footfalls. “The beauty and the hair industry needs to come together. It is a huge industry in India and we can raise a lot of fund, which can go to people that cannot afford to even open their small salons,” suggests Sapna Bhavnani, a celebrity hairstylist.

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Online gambling grows by leaps and bounds in locked-down India

Preeti Sompura

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Online gambling

With all of India in lockdown, online gambling has become a favourite pastime for many people. Online games are not new and many are addicted to this craze but online gambling is catching up and how! An expert estimates this new industry to be worth $150 million and growing by the minute. While online games attract 75% of mainly male youth, now the youths are turning to online gambling, like poker and rummy. The most popular gambling avenues are lottery, racing, betting, casino, rummy, and poker. It’s an addiction for those who are hooked to their screen for hours. Teen Patti, a game very popular in India, especially during Diwali, has occupied the top 10 ranks in the virtual world too. With huge demand and popularity, many gaming sites are organising annual game tournaments. Legally, only a person of age 18 or above is allowed to play or participate in online gambling with no checks and balances. As a result, many minors have fallen into this trap. With no monitoring by government agencies, these minors use fake IDs to create online accounts.   

Activist S. Balakrishna said he would file a PIL in the Bombay High Court praying for a ban on all online gambling sites. He said there are several websites for poker and sports betting like Ladbrokes on which you can bet on cricket, football and other sport with impunity. Many Indian bookies are betting on these sites on behalf of thousands of benami clients and making huge profits. As for poker, rummy and other card games, many are Chinese run and huge bets are placed in the games with almost no law enforcement in this area. India has no dedicated laws or a framework to deal with legal issues of online games and gambling. Gambling comes under the states’ list with different states having different laws for it. Few states like Sikkim and Goa have allowed games of skill while other states prohibit them in all forms. This issue becomes further complicated since the Supreme Court recognised rummy as a game of skill. Though online gambling companies in India are now required to comply with multiple Central and state regulations, the companies get away with it due to loopholes.

Data suggests that 11% of global Internet traffic is of online gambling and one in 20 accounts is connected to fraudsters. According to the 276th report of the Law Commission of India, the present market for online gaming is worth $360 million which is expected to rise up to $1 billion by 2021. Supreme Court lawyer Pradeep Rai said, “Any kind of gambling, either it is offline or online, falls under the same offence similar to hate speech and hate writing. It’s an organised crime offence which has taken place. Online gambling in a state like Maharashtra is completely banned whereas a state like Sikkim allows for the sack of revenue consideration. Any game, which has a monetary part, is considering to be an offence”

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More foreign investment needs less sway of domestic interest groups

The sectors which could draw in the most investments are the ones where domestic entrenched interests maintain stiff roadblocks. The insurance sector is an apt example.

Subhomoy Bhattacharjee

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FDI

On the face of it, India has begun to get lots of foreign direct investment, yet there must be concerns it is not enough. Certainly, that would seem the reason why Prime Minister Narendra Modi met his ministers and top officials of finance and commerce ministries to discuss strategies to attract more money into India. Between FY14 and FY19 India has drawn in $286 billion, a 51 per cent jump over the previous five-year period FY10 to FY14. But it is quite apparent that the government policies in India often militates against such investments. The kerfuffle about Amazon and Walmart’s investments are not the only ones. The sectors which could draw in the most investments are the ones where domestic entrenched interests maintain stiff roadblocks. Let me explain with reference to the insurance sector.

As Covid-19 has made clear, we need lots of money here.  As of now foreign investment (FDI) into the sector is at less than majority control at 49 per cent, despite a budget assurance in 2018- 19 to raise it upwards. Hundred per cent FDI is only allowed for insurance intermediary companies, which means largely brokers and other mediators between the companies and the buyers of insurance.  Why is this so? Insurance is a capital-intensive sector. Unlike banks where a loan can be made on the basis of the leverage of the deposits held, each policy written by an insurance company needs additional capital. This makes expansion of business in an insurance company costly. It favours those companies which have deep pockets. It is also necessary to give the insured a feeling of confidence that her risks are truly covered. The Insurance Regulatory and Development Authority of India (IRDAI) has, therefore, prescribed a stiff 150 per cent solvency ratio for insurers.

Yet, Indian insurance companies do not have the deep pockets and would rather hide behind government policies not to face competition from abroad to expand their business. This is the reason why despite the presence of 24 life insurance companies and 34 non-life companies, the needle of insurance penetration has hardly moved. In the past 16 years it rose by mere 1 percentage point from 2.7 per cent in 2001 to 3.7 per cent in 2017 (IRDAI). The companies are however doing well, except for three state-run non-life insurers. (New India, also state run, is doing well.) They have chased profitability instead of growth to compensate for their limited capital and this is the reason why all of them offer a narrow range of business with overkill in the market of motor, health and fire. In the life business, the companies have chosen to concentrate their cover on the urban salaried population, for obvious benefit of better mortality rates and the consequent scope of selling more costly products. Consequently, new-age risks are not offered since those will involve more pressure on capital. Delivery models too are not improved to make those less dependant on brokers or channel partners since there is no urgency to change these marketing strategies.  State government policies are also not helpful. Those with weak finances do not want to run insurance cover for health or crops. They depend instead on models that do not draw out money from their budget.

So, there is no competition among the companies to offer cheaper products. The loser is the Indian, shorn of adequate insurance cover that the pandemic has sharply exposed them to.  The prescription should thus be to allow more FDI in the sector so that management of these insurance companies passes on to well-financed companies abroad. It will also spur mergers and amalgamations in the sector, which will also yield the same beneficial result. But no domestic insurance company will ask the government to break their cosy chain. IRDAI did a survey among the companies last year and passed on its recommendations to the finance ministry.

It has not yielded results, because the lobbyists have been able to show that the jump from 26 to 49 per cent has not yielded results. In the life insurance sector, against the 49 per cent headroom of foreign investment, the aggregate foreign investment is only 35.49 per cent. For nonlife insurance, the headroom is wider. The space for foreign investment has been utilised to less than half of the permissible limit at 23.66 per cent as on March, 2019. It is a circular reasoning, though. At 40 per cent, few investors from overseas will company in. At over 51 per cent, the money will be more forthcoming.  To make this change in FDI rules does not require adoption of any new strategy to bring investments into the sector. It requires paying less attention to the domestic interests which would wish to block the investments. That is only “fast-track mode” needed. Subhomoy Bhattacharjee is a senior journalist and Senior Adjunct Fellow at RIS.

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Amarinder urges Shah to allow small industries to operate

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small industries

Expressing concern over the plight of small industries owing to the continued lockdown, Punjab Chief Minister Captain Amarinder Singh on Monday sought the Centre’s permission to allow these to operate by engaging labour from the family or the neighbourhood.  The Chief Minister has written to Union Home Minister Amit Shah to allow small industries, located in urban areas, to function outside the containment zones and be subject to full Covid preventive measures as per the specified SOPs in this regard. Pointing out that most industrial cities of Punjab have recently come under the Red Zone because of people coming in from others states, he said that these industries can function with 2 to 5 people comprising of family and neighbours.

He said that a large number of tiny, cottage, micro and small industries operating in the state, employ around 2-5 persons who reside in the neighbourhood and in many cases only family labour is used with no external workers at all. Often these small and tiny units are vendors of large units and supply them with some essential components, failing which even large units, even though permitted, cannot function, he further observed, seeking amendment to the instructions/guidelines issued by the Union Home Secretary. The Chief Minister has solicited Amit Shah’s prompt intervention to direct his ministry to amend these guidelines to allow the said industries in Punjab to function.

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Covid-hit hospitality sector in ‘free fall’, seeks government help

Hoteliers & restaurateurs look to the government for easement of liquidity via bank loans.

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Every summer, year after year, hoteliers in the Indian hospitality industry have found themselves busier than ever before. Handling scores of bookings was a norm every peak summer season as domestic and international tourists flocked to their favourite destinations to get a respite from the hustle and bustle of their busy lives. But this time the situation is different; hotel rooms are occupied, though not by tourists but by tired corona warriors, who the hotel industry has opened their doors to, as infections continue to spike in the country despite weeks of lockdown. “We could be headed towards a very unfortunate and virtual collapse of the sector. We are in the bright red zone — the first to decline, and it takes us the longest to bounce back. Even if the lockdown is lifted today, there are businesses that are going to shut and there are jobs that are going to be lost. That is the unfortunate truth,” says Gurbaksh Kohli, vice-president, the Federation of Hotel and Restaurant Associations of India. The situation is no better for restaurants as the hotel, travel and restaurant industry are inextricably interlinked.

The restaurant industry, which is bleeding profusely due to the impact of coronavirus, is hoping for some support from the government. “Our ability to bounce back and regain a foothold gets lost every day that support does not come in. I don’t want to sugarcoat my words: we are looking at an existential crisis,” says Anurag Katiyar, president, National Restaurant Association of India (NRAI). Not just restaurants, but also the hospitality industry as a whole claim they need some support from the government, simply to stay afloat. “The government needs to understand that hospitality is a highly capital-intensive business. None of the fixed costs that are part of our business, has there been any relief of any kind. Business and profit aside, just for the sake of people in our industry, I think they need to wake up and smell the coffee. First priority is liquidity, and then have the other parts thrown in. The government cannot wait any longer as we’ve been breathing fire for too long.

Too many industry players won’t be able to survive beyond a 30-60-day period. The government will be staring at a huge unemployment crisis,” says Ratan Keswani, deputy MD, Lemon Tree Hotels.  The situation seems so grim that the biggest names in the hospitality industry claim that they are struggling for bare survival. “Right now, nobody knows anything. I can’t predict anything for the next 3 or 6 months. The issue before us right now is how do we pay our people… The most critical need is deferment of loans and principal and interest of loans for 12 months,” says Ajay Bakaya, MD, Sarovar Hotels and Resort. Another challenge in front of the industry seems to be regaining the trust of the customers back. “The fear psychosis that will exist in the minds of travellers is a big problem. It’s important to think about the traveller’s point of view, how do we give them the comfort and confidence to start travelling? I think they will be an overzealous lot that will start travelling. But there will also be conservative people, who will need confidence to travel that the places and hotels they are entering are safe to enter,” says Bhanu Chopra of Rategain, a travel and hotel software company.  Kapil Raizada, Co-founder of RailYatri, seems to agree. “We need to address the fresh concerns of travellers, maybe change the construct of our products, at different price points which we don’t know what they will be. Revival won’t be easy and the industry needs to act now to formulate a strategy feel many,” he says.

“We need to quickly work in a certain direction for the actual delivery of our product post the lockdown. It’s not going to be a flip of a switch,” says Varun Chaddha, CEO of Tirun, a leading travel company with an expertise in cruises.  Most of the industry leaders The Daily Guardian spoke to batted for the US model, where the loan given to companies is passed on as wages. “That is the way we need to go. We cannot have millions of people desperate for cash. This is going to become a societal problem. People cannot survive without basic livelihood,” says Rohit Khosla, Executive VP, Operations, IHCL. With the losses of the hotel industry pegged at Rs 650 crore as a direct result of the pandemic, the industry feels it needs to act now, not only to press the government for relief but also to create a long-term strategy to regain customer trust as things start limping to normalcy.

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GHAI employing 50,000 people demands bailout

Tarun Nangia

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GHAI

With airlines not operating flights for over 40 days now, the airport ground handling industry employing 50,000 employees all over India is in a precarious situation. The Ground Handling Association of India (GHAI) companies have requested a bailout from the Government of India in the form of a sustenance allowance. This is so because these companies are dependent on airlines for their revenue. Speaking to this writer, Shyam Malani, director, Indo Thai Airport Management Services, said, “The ground handling services industry is earning absolutely zero revenue as airlines are not operational. It will take many months for the industry to come out of this stress.” The letter, submitted by Murali Ramachandran, president, GHAI, to the Ministry of Civil Aviation (MoCA), a copy of which was accessed by this writer, said that the current situation could bring the industry to the brink of closure. With all international flights stopped, the ground handling industry lost whatever residual revenue that was left after domestic flights were stopped. It will take up to a year for the situation to normalise.

In the current situation, it is impossible for the industry to afford sustain a monthly salary bill of Rs 120 crore and other costs of statutory obligations, loan repayment to the financial institutions along with the interest, royalty payments, land and space rentals and the minimum guarantee fees, utilities charges, etc., of about Rs 75 crore. This will bring the ground handling business to a complete closure, Ramachandran said. MoCA has yet to declare this extraordinary situation as a “Force Majeure” whereas the Delhi High Court in a recent case has agreed that the present situation is clearly a “Force Majeure” situation, said GHAI in a statement. The GHAI has demanded that the MoCA direct all airports to not charge rentals for both city and air sides terminal and ramp space should be charged. Also, no concession fees should be charged till further notification of the government, which would come after the return of normalcy in air operations. The association has explained that financial support from the government will enable them and ground handling agencies to pay full salaries, alternately permit them to pay a sustenance allowance to the large workforce till the operations return to normalcy and they reach the January 2020 levels of business revenue.

It must be recalled that this is the third time the GHAI has approached the MoCA, urging it to treat this as an SOS and issue directions towards this end to prevent the industry from closing down and putting a large portion of the 50,000 jobs at risk. Other demands of GHAI include deferment of employment-related statutory dues like provident fund and ESIC without any interest. Aviation industry veteran Pervez Damania said, “The government needs to come out and do something for the aviation industry. The aviation is the backbone of the India growth story and now has been hit badly. Hence, the government should come out with a strong support in form of subsidy and interest-free loans. Unless the government comes with a big support package, the industries of tourism and airlines would not be able to survive.”

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