By – Ramesh Vaidyanathan & Mansi Singh
International Air Transport Association (IATA) reckons that 2020 will perhaps be the worst ever year for aviation. Airlines in the Asia-pacific region alone are expected to report losses to the tune of USD 29 billion. Indian carriers are estimated to lose revenue of about USD 11.61 billion in 2020 and 3.06 million jobs are likely to be impacted.
India resumed domestic passenger flights from 25th May, 2020 after a gap of two months but the permission was limited to a maximum of 45% of the pre-COVID domestic flights. Scheduled international flights have remained suspended since March and this is expected to continue for the next few weeks at least. Only repatriation flights and transport bubble flights have been permitted during this period.
To allow gradual movement of passenger traffic, ‘Transport Bubble’ agreements have been signed by the government with countries such as United States, France, Canada, UK, UAE, Maldives and Germany. Transport bubbles are temporary arrangements between two countries aimed at restarting commercial passenger services when regular international flights are suspended. They are reciprocal in nature and airlines from both countries enjoy similar benefits. However, travel is subject to conditions imposed by the governments of the two countries.
Chances of Recovery
Despite the government partially opening up the skies, the demand for air travel is sluggish, especially with each Indian state coming up with its own travel restrictions and quarantine requirements. As per the Directorate General of Civil Aviation, nearly 2.1 million passengers travelled by air domestically this July, which is 82.3% lower than the corresponding period last year. If airlines are only allowed to operate a maximum of 45% of their pre-COVID domestic flights, they will have to charge higher fares to sustain their operations. India is a price-sensitive market and any hike in fares will result in a drop in the passenger traffic. It is a catch-22 situation.
Survival of the fittest
Some airlines may not survive the COVID turbulence and it is possible that the Indian market is reduced to 2-3 players. As things presently stand, Indigo, Vistara and Air India are expected to survive this crisis even if they are badly bruised in the process. Indigo, the country’s largest carrier, is trying to maintain liquidity and is cutting costs. Vistara is bleeding but has the support of its shareholders, Tata Sons and Singapore Airlines. The one good news for Air India in a long time is that the Tata Group has again shown interest in acquiring it. Tata Group is racing to complete a due diligence before the 31st August, 2020 deadline for the bid. If successful, Tata could have full control of Air India as early as January next year.
Focus areas for survival
Fleet management: CAPA India estimates that Indian carriers will require a domestic fleet of around 300-325 aircraft October 2020 onwards, and an international fleet of 100-125 aircraft. The total fleet size of 400-450 aircraft would still mean that the current fleet of 650 represents a surplus of 200-250 aircraft for a period of 6-12 months. Determination of the optimal size of fleet will hold the key to the survival of airlines.
Aircraft lease arrangements: Airlines must revisit their aircraft lease agreements and approach the lessors for seeking concessions on lease payment obligations.
Emphasis on hygiene: Travelers will undoubtedly be nervous, so responsibility will fall on airports and airlines to reassure anxious travelers that they are taking all possible precautions to safeguard health and safety. Social distancing at airports, health screening facilities, sanitizing booths, etc., are essential to regain the confidence of travelers.
Promotion of tourism in key states: It will be in the interest of the government and the entire transportation/hospitality industry to come up with packages/incentives that will help revive the tourism sector once Covid subsides.
In the short to medium term, factors such as remote working, government or organisation-imposed restrictions on air travel, greater reliance on locally procured products and services may impact demand in the aviation industry. Social distancing at airports and time-consuming check-ins may make the whole process of flying a hassle. With higher fares, fewer routes and less in-flight options, the Indian flyer may not be ready to take-off immediately. Having said that, aviation will always remain an indispensable part of travel, whether for business or leisure. Recovery will happen, albeit slowly.