Logistics

Bracing to take off at full capacity

K Giriprakash | Updated on June 13, 2021

As lockdown restrictions ease, a crippled airline industry will have to shift gears to monetise passenger and freight traffic

 

With states lifting lockdown in a phased manner, domestic airlines can soon expect the Government to lift its cap on airline capacity.

The Ministry of Civil Aviation (MoCA) allowed a gradual rise in capacity deployment on domestic routes from May 2020. However, it reduced it to 50 per cent of pre-Covid-19 levels with effect from June 01, 2021, in the second wave of the pandemic.

While carriers can’t do much about these decisions, it is clear that if the cap is not removed, it would further cripple the industry. As IndiGo chief executive Rono Dutta said in a recent interview, the government needed to take a call on this as early as possible.

Remi Maillard, president and MD, Airbus India & South Asia, told this paper evidence demonstrates that the aircraft travel environment is not a prominent vector for infection and that aviation was capable of restricting virus translocation, thus enabling freedom to travel — important for people, livelihoods and economies.

Airbus has created a model that calculates the risk of virus transmission by modelling specific steps in the air travel journey. “The objective is to support governments and regulatory bodies in making performance-based, data-substantiated decisions when reopening global air travel,” he said.

But can airlines reorganise themselves when the capacity cap is removed? IndiGo had previously said it was gearing up for higher loads while Spicejet and the others are on a wait and watch mode.

“Not much is under the domestic airline’s control. They have been hamstrung by capacity restrictions on some routes and fare caps. With MoCA likely to raise the cap on capacity from next month, seats will not be a problem, but uncertainty in demand could hamper steady loads,” says Vasudevan S, partner and global sector lead for, among other sectors, airports business, KPMG India.

He lists measures — such as relaxing testing norms for double-vaccinated travellers — that the government can take to help increase the demand. Airports, airlines, health authorities, state governments and regulators should agree on a protocol to make this work. “This will provide the much-needed succour to the sector which is struggling to keep businesses alive. They will also need adequate financial support to remain operational,” Vasudevan says.

Others believe the international passenger is a key revenue generator. Singapore-based airline analyst Brendan Sobie says the three main segments for passenger airlines in India are domestic passenger, international passenger and cargo. Cargo was a lifeline during the pandemic, but cannot offset the reduction in domestic and international passenger traffic.

“Domestic passenger (traffic) was recovering well and was close to pre-pandemic levels before the tsunami hit. But even with a full domestic recovery and cargo airlines, it will also need international to recover to be profitable,” says Sobie who runs the airline consultancy firm Sobie Aviation.

While airlines in India will benefit from a resumed domestic recovery over the next several months and from cargo, international traffic will take longer to recover, he cautions. Airlines need to bolster liquidity to cope with losses until this last segment can recover.

Clearly, there is no one-size-fits-all kind of model. Some are banking on the cargo business to lift revenues while the others would wait till the passenger traffic recovers. “Our ability to compete with large freighters on international routes remains constrained by capacity restrictions and disparities in two-way volumes. As demand stabilises and international passenger operations open up, monetising belly spaces will continue to remain attractive but margins may get rationalised with more capacity available,” Vasudevan says.

Nevertheless, the key to surviving the pandemic is still the good old way of running a business: Be nimble, conserve cash and work towards securing more capital, according to Sobie.

Published on June 13, 2021

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