Coronavirus: Domestic air traffic will take 50% hit; most global airlines may go bankrupt by May: CAPA
The global impact of Coronavirus will have a huge cascading impact on the Indian aviation industry.
According to a recent report by Acuite ratings, the domestic air traffic will be impacted negatively by 50 per cent, which will in turn also impact the passenger load factor (PLF) by 50-60 per cent till June 2020 on a year on year (YoY) basis.
The Indian government has suspended “all existing visas, except diplomatic, official, UN/international organisations, employment, project visas” until April 15. The visa-free travel facility for Overseas Citizen of India (OCI) holders has been suspended.
India has also implemented an embargo on public events, shutdown of schools, malls and other places of public activity by an increasing number of state governments.
India imposed these stringent travel curbs after the World Health Organization (WHO) declared the coronavirus outbreak a pandemic.
“All these measures and along with it, the increased risk of contagion in public spaces have led to an increasing impact on airlines through ticket cancellations and a rapid slowdown in fresh bookings,” said Acuite.
Further, the virus threat has emerged just before the start of the holiday season in India in April, it added.
The latest data from DGCA shows a modest growth of 2.2 per cent in January 2020 when it only reflected the general slowdown in the economic environment and had not yet seen any effect of Covid-19.
Acuite expects a significant negative growth in monthly domestic airline traffic which can go as high as 50 per cent at least up to June 2020, depending on the severity of the outbreak in India in the near term.
“The drop in passenger volume will also have a sharp impact on the average PLF during this period and a dip to 50%-60% over the next 3 months is not an unlikely scenario,” the report added.
According to the report, the decline in PLF and domestic air traffic will impact the airfares. “Airfares are set to decline substantially over the next 2-3 months.”
The reduction in fares along with the sharply lower passenger load factors, are thus expected to lead to a precipitous drop in the operating margins of the airline companies in Q4FY20 and Q1FY21. The airlines who have a higher presence in international routes clearly will witness a sharper impact.
BusinessLine had reported 585 international flights had been cancelled to and from India between February 1 and March 6 because of the outbreak of coronavirus. As many as 16 international airlines have cancelled 492 flights and four private Indian airlines have cancelled 93 flights during this period.
As of March 6, on a weekly basis, IndiGo had cancelled the highest number of flights at 42. In an exchange filing last Wednesday, IndiGo cautioned against a weak quarter due to the impact of coronavirus, and rupee decline. The no-frills carrier had seen a decline of 15-20 per cent in daily bookings on a week-on-week basis due to coronavirus.
SpiceJet had cancelled 23 flights. SpiceJet’s CMD in a statement on Thursday said: “The aviation sector is under a lot of pressure. But this is temporary. We have been here before.”
Globally, the aviation industry remains one of the worst affected. As per the latest assessment by International Air Travel Association (IATA), there may be a passenger revenue loss ranging from $63 billion to $113 billion which is almost 11%-19% of global passenger revenues, based on the current spread of the virus. This will not only lead to sharp declines in airline revenues but also raises the prospect of large losses in most of the larger airlines specifically in the current and next quarter.
CAPA, in a note on Monday, said "As the impact of the coronavirus and multiple government travel reactions sweep through our world, many airlines have probably already been driven into technical bankruptcy, or are at least substantially in breach of debt covenants," it stated.
"By the end of May-2020, most airlines in the world will be bankrupt. Coordinated government and industry action is needed - now - if catastrophe is to be avoided," it added