India's airlines struggling to clear pandemic-related turbulence

Restrictions on domestic travel have been lifted but flyers remain cautious as Covid-19 cases continue to spike

Air passengers wearing protective suits walk out of the arrival lounge of the Netaji Subhas Chandra Bose International Airport after the authorities eased restrictions imposed as a preventive measure against the spread of the COVID-19 coronavirus, in Kolkata on July 6, 2020. India announced on July 6 that it had logged nearly 700,000 coronavirus cases, taking it past Russia to become the world's third-hardest-hit nation in the global pandemic. / AFP / Dibyangshu SARKAR
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India's airlines are facing their most severe headwinds yet, with the impact of the coronavirus pandemic threatening to push some of them out of business, analysts and industry insiders say.

“Most Indian airlines will be seen fighting to survive,” says Kanika Tekriwal, the chief executive and founder of JetSetGo Aviation, a platform for private jets.

“Even after the resumption of domestic travel, the demand is not picking up, due to natural concerns of passengers regarding their safety. Operators are running out of cash and facing a really hard time.”

Consultancy Capa Centre for Aviation expects Indian airlines to lose $3 billion to $4 bn (Dh11bn-Dh14.7bn) dollars in the current financial year, to the end of March 2021.

“This would be by far the largest loss in Indian aviation history,” according to a recent report by the consultancy. “If the second quarter is a washout as expected, and the third quarter and fourth quarter remain soft due to a combination of weak customer confidence and economic distress, market exits are inevitable. Strategic consolidation may result in India being a two-to-three airline market.”

To avoid this consolidation, it says Indian airlines require $3bn-$3.5bn to recapitalise – excluding major player IndiGo.

Capa also forecasts that the workforce in the aviation sector will be reduced by 30 per cent.

The aviation industry contributes $72bn to India's gross domestic product and its domestic air market in the world has been the fastest growing in the world, according to government data.

But this growth has been hit hard by the pandemic.

“The sector's facing an unprecedented task in keeping afloat the aviation industry,” says Vasanth Rajasekaran, partner at Phoenix Legal, an Indian law firm.

After two months of closure, the Indian government allowed airlines to resume domestic operations at 33 per cent of passenger capacity, a limit which was last month increased to 45 per cent. But international operations remain suspended and there is no clarity on when these services will resume.

Coronavirus infections in India are continuing to surge, with the total number of confirmed Covid-19 cases at 820,916 on Saturday, according to Johns Hopkins University, which is tracking figures globally.

Even before the coronavirus pandemic – which meant that airlines had to ground their fleets in March because of a nationwide lockdown and a ban on international and domestic passenger flights –  the sector was facing turbulence.

There are six major airlines in India, including the country's flag carrier Air India, and budget carriers GoAir, SpiceJet and IndiGo, which is India's largest airline.

Recent years have seen cut-throat competition between India's airlines, which pushed fares on some routes to rock bottom prices. Combined with high taxes and operating costs, this made for a challenging environment to generate profits.

All of these factors contributed to Jet Airways ceasing operations last year as it went bankrupt.

And the state of the industry is such that the government's efforts to sell off debt-laden Air India have failed to attract many bidders ahead of a deadline of August 31.

In a country of 1.3 billion people, the aviation industry has enormous potential, however, affordability is a major issue. Even before the virus outbreak, only a single-digit percentage of the population travelled by air.

Problems in the industry stem back to 2012, when Kingfisher Airlines, controlled by liquor baron Vijay Mallya, went out of business. Mr Mally is still dealing with the fallout of that failure, as India is fighting for his extradition from the UK as banks try to recover their money.

But the challenges now are even greater for the country's airlines amid mounting costs and limited income.

“If you look at the business level, starting from aircraft leasing, the operators are facing a huge task, plus the dues on aviation fuel,” says Mr Rajasekaran.

A sharp fall in the rupee is only adding to the sector's woes because a large portion of the industry's costs are in dollars.

Analysts say that it is difficult to see how airlines can fly through the crisis unless the government steps in to help. The industry has been calling for a bailout from prime minister Narendra Modi's government.

“Until there is some form of stimulus package or the government announces a moratorium for financing options, it will be very difficult for the industry to survive,” says Mr Rajasekaran.

Government officials say measures are being taken to help the industry.

“We haven’t given a financial bailout package, but that doesn’t mean the government has not been helping the aviation sector,” Pradeep Singh Kharola at India’s aviation ministry told Bloomberg. “The help can be in various ways.”

Strategic consolidation may result in India being a two-to-three airline market"

This includes plans announced to open up India's airspace and to auction off six airports under a public-private partnership model, as part of the $270bn economic package the government unveiled in May.

But the industry says that these are long term measures and what the sector desperately needs is immediate support.
The International Air Transport Association is forecasting that Indian airlines will lose $11bn in revenue this year and says there are almost 3 million jobs at risk in the sector.

RP Yadav, the chairman and managing director at Genius Consultants, a human resources firm, agrees the situation looks bleak in terms of employment, with job cuts and salary reductions already underway throughout the aviation sector.

“There will be more job losses as the number of Covid cases are still on the rise,” says Mr Yadav. “The industry will find itself in a terrible situation unless a support package from the government is received.”

DK Aggarwal, the president of the PHD Chamber of Commerce and Industry, says that although domestic flights have resumed in India, many people are still unwilling to travel. He says short term funding and some tax relief from the government is needed for airlines to get through the pandemic.

“My sense is that domestic travel could be at pre-Covid levels in six to 12 months. A full revival of the aviation sector, however, won't [happen] until 2022,” he says.

This is despite the fact that airlines and airports have put several contactless and safe distancing measures in place to try to reduce the risk of infection, including self-bag drop facilities and the use of digital boarding passes.

Surveys suggest that many people will only travel when the virus comes under control.

Capa's report paints a bleak picture for how the coronavirus pandemic has the potential to affect India's aviation sector.

Aircraft operated by AirAsia Bhd, Vistara, a joint venture between Singapore Airlines and Tata Group, and IndiGo, a unit of InterGlobe Aviation Ltd., stand at Terminal 3 of Indira Gandhi International Airport in New Delhi, India, on Sunday, June 28, 2020. India, which allowed airlines to resume domestic flights from May 25, has put restrictions on fares and capacity deployed making their viability more difficult at a time when the industry’s recovery is seen to be long and slow. Photographer: T. Narayan/Bloomberg

A two-to-three airline market would have completely different dynamics, it says.

“IndiGo having a domestic share of greater than 70 per cent, the other surviving carriers may be relatively weak. What business case will they have? Will they be able to compete and to grow?” it asks.

“If the remaining players in Indian aviation are unable or unwilling to grow, this will significantly impact growth dynamics as and when the market recovers.”

This, in turn, would have a major negative impact on connectivity in India and hurt the wider economy.

Aviation is a huge contributor to GDP and "needs an immediate cash flow in forms of reforms or bailouts to support high fixed costs”, Ms Tekriwal says. “We are hopeful to receive support and relief.”

She says that that the recovery will be “long and slow”.

The outlook ahead remains cloudy, though.

“Whether the airline industry survives or whether it collapses depends on the pandemic, because we don't know if we're going for a second or third phase of the virus, and whether the government gives any fiscal stimulus package for the sector,” says Mr Rajasekaran. “For the aviation sector to stay afloat, we need the government to announce a package.”