Flight Plan

Omicron: Airlines on a wing and prayer

Giriprakash K | | Updated on: Dec 26, 2021
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Over 3,000 flights were cancelled on the eve of Christmas and cancellations are expected to double as New Year approaches

The visuals of the country’s yet-to-be-launched Akasa Air are already populating social media with praise from almost all the stakeholders.

But will Akasa Air be able to start its operations in the second half of 2022, as forecast? With the Omicron virus spreading like wildfire, it might not be easy to forecast a recovery of the airline sector going into the following year. One indication of how the world views the third wave of the pandemic can be gauged from the number of cancellations that the airlines have carried out on the eve of Christmas. At the last count, over 3,000 flights were cancelled, and as the New Year approaches, the cancellations are expected to double.

According to Suprio Banerjee, Vice President and Sector Head of the rating agency ICRA Ltd, the Indian aviation industry is estimated to report a net loss of ₹25,000 crore - ₹26,000 crore in FY2022, with recovery in domestic passenger traffic to pre-Covid levels expected only by FY2024. But this forecast is for reasons other than the recent outbreak of the Omicron. Hence, almost all airlines will now have to revise their forecasts downwards than they already have.

A year ago, the AirAsia India MD and CEO, Sunil Bhaskaran, told this paper that normalcy is expected to return by the second quarter of the calendar 2022, when most other airline heads felt that the recovery could happen sooner.

Before the Omicron virus reared its head, the airlines across the country were witnessing some good growth. They were on their way to return to normalcy as forecast by the AirAsia India CEO. The weekly average daily fliers stood at 3,60,000 in the week ended December 18 versus 3,58,000 in the same period. The passenger load factor had witnessed an improvement for all the major airlines in November. Air India reported a sharp sequential improvement of PLF from 76 per cent in October to 82 per cent in November, as per a note from ICICI Securities.

In limbo again

However, the last few days have shown that the airlines will miss the bus again. The rapidly spreading Omicron has already forced several States in the country to start pulling down the shutters placing restrictions on travel and bringing in night curfew, and even banning New Year eve parties altogether. Even though it is too early to forecast how deep the impact of these measures on the airline sector will be, there are already indications that airlines might start delaying the induction of more aircraft.

Perhaps the nearest that anyone has come to forecasting how severely Omicron can impact the airlines’ economy is celebrated pilot, Capt Shakti Lumba, who set up the country’s first low-cost PSU airline, Alliance Air, a subsidiary of Indian Airlines. “It is going to be rough weather for the airline industry. Both are due to Omicron, which is just rearing its head in India and its effect on the economy. It will spell doom for more than one airline with the industry expected to witness huge existing overcapacity and suffer major losses,” Capt Lumba, who recently launched his book, The Old Bold Pilot , told BusinessLine .

In a note to its investors, Prabhudas Lilladhar, a research-based financial services company, said that during a recent interaction, IndiGo management had said that the airline will strengthen its domestic network aided by regional expansion post-pandemic and widen the international network with the help of longer-range aircraft. All these plans will now have to be deferred for a longer time.

According to one of the top executives at one of the busier airports in the country, the government should step in to arrest the downward spiral witnessed by the sector. “The government should start rolling out incentives immediately for the aviation sector to salvage whatever is possible,” he said. The incentives could be in the form of reduced aviation turbine fuel tax and consensus among the States to bring it under the GST fold. “While the growth has been much below pre-Covid levels, either on a monthly or on a cumulative basis, the other challenge which the industry has been facing in CY2021 is rising aviation turbine fuel (ATF) prices, which as of December 2021, has gone up 67 per cent on a y-o-y basis,” Banerjee pointed out.

On their part, domestic airlines will have to rework their maths, decrease or put on hold capex and focus on unit costs to maintain the lowest industry cost structure. As far as the entry of new airlines is concerned, the prudent thing to do would be to defer the launches.

(With inputs from Chitra Narayanan).

Published on December 27, 2021

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