Thursday, May 21, 2020

Skies open, but who wants to fly? Airlines grapple with low demand, high costs

After a series of flip-flops, the Ministry of Civil Aviation (MoCA) has finally given its green signal for resuming domestic flights from May 25. International flights, however, will remain suspended for the time being. Civil Aviation Minister Hardeep Singh Puri has clarified that flights will be resumed with certain riders. Airlines will be allowed to operate at only one-third capacity approved in the summer schedule in 2020. For instance, if all the airlines were to operate 100 daily flights between Delhi and Mumbai as per the summer schedule, they can only take 33 now. Puri further said airlines would be allowed to add more flights "in a calibrated manner", but he didn't elaborate the conditions that are to be met.
In addition, the Civil Aviation Ministry has given a fare band under seven categories depending on the duration of the flight. For instance, a Delhi-Mumbai flight ticket can be priced between Rs 3,500 and Rs 10,000, with 40 per cent of the tickets to be sold below Rs 6,750. Then, there are a host of guidelines for the passengers keen on air travel after flights are resumed.
With this, the airlines have gone back to the drawing board to prepare a fresh reboot plan. As carriers take to the skies after a gap of 62 days, they would be facing the most difficult question: Will there be a sustained demand for air travel in the COVID world? Experts say demand for air travel is going to peak around a week or so post May 25 since a lot of people who were stranded would return to their safe zones. After that, there is a strong likelihood that the demand would tank.
As per some estimates, nearly 80 per cent of air travel demand would get wiped out over the next three months. That's because nearly 40 per cent of air travel is driven by leisure. Until a cure is found, this segment would remain fragile as holiday travellers prefer their private vehicles for a trip within a driving distance of three-five hours. Even though the demand from business segment, which is 60 per cent of the overall demand, is expected to be better than leisure, the overall pie would shrink.
"After a week, I believe that there will be a true test of the demand. This is the biggest demand shock for the airline sector in history. Even one-third capacity is a bit much, and I see airlines would be forced to sell tickets at the lower end of the band," says Vinamra Longani, head of operations at Sarin & Co, a law firm specialising in aircraft matters.
22/05/20 Manu Kaushik/Business Today
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