COVID-19: Indian aviation risks devastated sector

The Indian arm of the CAPA aviation consultancy is warning that India’s government and all sectors of the aviation industry need to come together to change the shape of Indian aviation from the ground up if it is to survive the COVID-19 pandemic. “The current COVID crisis must be used to initiate structural changes for the long-term viability of the sector. The industry will need to make some hard choices. Despite carriers being pushed to the limit, most airline promoters have shown themselves to be either unable or unwilling to recapitalise their businesses,” CAPA India said in its May report. “Perhaps this is due to uncertainty about the way out, or the possibility of another major shock down the road. Will it be a case of throwing good money after bad?” A screenshot of the COVID-19 tracking site produced by Johns Hopkins University taken on 6 May. To access the live site, click on the image. (PHOTO: Matt Driskill) The report also said “now is the time” for airline operators to decide whether they wish to remain in the aviation business and said if they do, their business models need to change. “Most airlines in India are over-reliant on sale-and-leaseback margins and advance sales to generate cash. The pursuit of aggressive growth without the balance sheet to support such a strategy will inevitably come undone whenever the next shock hits,” CAPA India said in the report. “Airlines will need to restructure their businesses to become leaner and reduce costs, while also increasing the strategic deployment of technology and analytics to enhance revenue and improve efficiency. Airports will also need to become less top-heavy, reduce manpower, focus on training, invest in technology and better understand the passenger.” (SOURCE: CAPA India) The report also warned that a current court case filed by passengers against airlines over the withholding of refunds could backfire and cost the industry US$300 million to US$500 million if they have to repay for unfulfilled flights. And as the International Air Transport Association (IATA) warned in a media conference call on 5 May, if aviation authorities impose social distancing and inspection protocols on-board the aircraft, some airlines may not be able to recover their variable costs and “some carriers may lose less money by remaining grounded”, CAPA said. (SOURCE: IATA) “In order to maintain social distancing on board aircraft, the Bureau of Civil Aviation Security has proposed that when airlines resume services they must not sell the middle seat, and the last three rows should be kept vacant in the event that a passenger needs to be quarantined mid-flight,” the report said. “The implication of this is that on a 180-seat narrowbody aircraft, an airline can sell at maximum 108 seats, representing a 60 percent load factor. (SOURCE: CAPA India) “Even if social distancing is not in place, demand conditions are expected to be so weak that passenger loads are in any case unlikely to be any higher than that. This will naturally increase the average break-even fare. There are other considerations that will place further upward pressure on the break-even fare. Turnaround times may increase as a result of increased sanitation requirements and revisions to passenger facilitation processes to maintain social distancing. In such a scenario aircraft utilisation would decline and unit costs would rise.” CAPA India said it has revised downward its traffic estimates for FY2021 to 55-70 million domestic and 20-27 million international passengers and has assumed that there will be little to no traffic in the months of April and May. To download the full CAPA India report, click on the image. (PHOTO: Matt Driskill) “Assuming a gradual resumption of services from the month of June, the industry will soon thereafter be heading into the second quarter, historically the weakest period for travel demand in India. The combination of the monsoon quarter, fragile economic conditions and lingering passenger fears about the safety of travel, could prove to be a devastating cocktail for airlines. CAPA India said for airlines to survive, they will need raise a minimum of US$2.5 billion in new capital and that, at least as of now, the government is not inclined to provide any bailout packages like those provided in other countries. “The industry must not rely on the government coming to its aid – at least initially – in the manner in which it is seeking,” CAPA India said. “Instead it must urgently find new ways and means to recapitalise. That is the only Plan B.” Download the latest issue of Asian Aviation here. For Editorial Inquiries Contact: Editor Matt Driskill at [email protected] For Advertising Inquiries Contact Head of Sales Kay Rolland at [email protected]