Flight Plan

Coronavirus sends aviation industry crashing

Ashwini Phadnis | Updated on March 31, 2020

Along with enormous losses enormous financial losses, the sector stares at retrenchment and possible consolidation down the line

Among the sectors to be hit by the fast-spreading coronavirus is the aviation sector, both globally and in India. Countries are taking their own measures for the aviation sector, which is on the brink of collapse.

In India, the impact of the virus was felt even before the government announced that all domestic operations will cease between March 24 and March 31 as domestic carriers had started cutting back on flights due to a fall in demand.

The cutback in flights had a cascading effect as the number of people at the airports to carry out functions like check-in, aircraft security, lifting of meals to be put on to the aircraft, apart from those employed in the various eating and shopping areas in the airport, also got affected. As things stand today, all domestic and international flights are banned till April 15 in India. Further, there is no clarity on whether the ban will be extended, leaving the Indian aviation sector staring at a very bleak future.

Entire fleet grounded

The entire fleet of 650 aircraft with Indian carriers is grounded. Commenting on the impact of the grounding, aviation advisory CAPA says that if the grounding of all domestic and international operations continues till June 30, the Indian aviation industry could report a loss of $3.3 billion to $3.6 billion in the first quarter of 2020-21.

Given similar scenarios across the world, international bodies like the International Air Transport Association, which estimates that globally the industry is likely to report a loss of about $250 billion, are appealing to governments for help.

In India too, CAPA has sought help from the government for the industry, suggesting a three-phase support, with the government providing cash infusion to support part-payment of salaries up to a certain grade for 3-6 months so that redundancies can be averted and, depending on the severity of the impact, the possibility of a direct cash injection by the government in the form of grants. This would be the first such instance of public funds being infused into private Indian carriers, but may be required in the event of an extended shutdown, CAPA says.

However, all this will be possible once the extent of losses to the Indian aviation sector becomes clearer. Lewis Burroughs, Head of Aviation India, ICF, feels that in the currently unfolding scenario, it is difficult to quantify the true impact of Covid-19. “We have never seen anything of this scale in the industry. The situation is rapidly changing and what we say today is likely to be entirely outdated by tomorrow. We have likely never seen a shock to this extent. The entire industry in India is on hold, which is unprecedented.”

Burroughs also believes that the industry will see a couple of poor quarters as a direct impact of this grounding and that he will not be surprised to see a longer-term knock as “fliers’ confidence takes time to recover.”

There are other related aspects of the losses too. What will airlines do? Lay off staff? Some believe that airlines might first experiment with cutting back on salary increases and other components of monthly salaries. But there is every possibility that the non-skilled staff could be laid off.

According to Burroughs, the current situation is too fluid to make any accurate predictions.

“There are a lot of unknown variables at this moment. Will the domestic market reopen in its entirety? Will airlines gradually resume services? Are all airlines going to survive?” he asks.

According to SpiceJet officials, the airline will look at all measures, including rationalisation of services, optimal utilisation of assets and tighter cost control, to ensure continuity in service once flight operations restart.

While IndiGo declined to comment, a clear indication of its future plans came in a letter that its CEO wrote to employees in which he hinted at a possible deferment of aircraft on order for some time. With cash reserves of over Rs 6,000 crore, IndiGo is in  a better position than most domestic airlines and the measures implemented, like pay-cuts and possible deferment of aircraft deliveries, could see it through the crisis.

Consolidation, the way forward?

The financial impact is one significant aspect of the impact of coronavirus. Others, however, are looking at what happens to the sector once things settle down. Many industry watchers are clear that consolidation will have to be the way forward for the sector to pick up the pieces and move on.

Says Nripendra Singh, Industry Principal, Aerospace, Defence and Security Practice, Frost & Sullivan, “Consolidation will be the next big thing in Indian aviation. It has happened in US and European aviation and is bound to occur even here.” He adds that not too many Indian airlines plan for or have the financial arsenal to deal with the current situation. “How many domestic airlines make the kind of provisioning that is required for an unforeseen incident as is being witnessed currently in the Indian and global market?” he asks.

CAPA is of the view that Tata Sons may be strategically compelled to operate one, rather than two, airlines. This may be the right time to rationalise its airline portfolio, CAPA says, adding that some weaker airlines will be left with no choice but to exit.

The only ray of hope in the current situation, if it can be called that, is that there are some who believe that the sector will bounce back. Says Singh, “The domestic demand is there. The middle class is growing and eventually even industry will have to travel to generate business. If they travel, airplane seats will surely get filled.”

Giving a positive spin to the current situation of gloom and doom, Singh also calls on airlines to take advantage of the forced grounding to get their aircraft maintenance up to speed so that they are in a position to take full advantage of what the future holds.

Published on March 31, 2020

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