The country's largest airline IndiGo has taken two big steps in the past week that's going to set the stage for the domestic aviation in times to come. After laying off 10 per cent of its workforce or nearly 2,300 employees, IndiGo, on Monday, said that it's slashing salaries of its senior staff by 15 to 35 per cent depending on their grades. This was a steep cut from its previous decision in March to reduce salaries between 5 and 25 per cent across the board. These cuts are on top of the compulsorily leave without pay (LWP) scheme of 10.5 days per month.
Experts say this is just a beginning of a painful road ahead for the sector as the demand for air travel continues to remain muted due to a variety of reasons. Since the opening up of the domestic aviation sector in late May, the capacities of airlines remain quite low - 30-35 per cent. This is despite MoCA (ministry of civil aviation) permitting carriers to deploy 45 per cent capacity from July 1.
In May, domestic carriers hoped that once they resume operations, the traffic would gradually pick up. But that didn't happen. The domestic passenger traffic data for June fell 83.5 per cent as compared to last year. The July data is expected to be no different. Kinjal Shah, Vice President and Co-Head, Corporate Sector Ratings at ICRA says that the daily passenger traffic of domestic carriers ranges between 65,000 and 70,000 which is substantially lower than 3.94 lakh in 2019. "Airlines are not expecting any improvement in traffic; their general perception is that the revival is going to take time," says Shah.
What makes the situation more worrying is that if the largest and most-cash rich airline IndiGo has started firing people, it's sending a message to other airlines to follow suit. Mark Martin, founder of Martin Consulting says that for Indian carriers, the four biggest operating cost items are fuel, aircraft finance, maintenance and people. "Lufthansa which has a somewhat similar cost structure has retrenched 16 per cent of its workforce (22,000 people) recently. In the base case scenario, the domestic industry would see 10 per cent job cuts, and this number could go up to 20 per cent," he says.
28/07/20 Manu Kaushik/Business Today
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Experts say this is just a beginning of a painful road ahead for the sector as the demand for air travel continues to remain muted due to a variety of reasons. Since the opening up of the domestic aviation sector in late May, the capacities of airlines remain quite low - 30-35 per cent. This is despite MoCA (ministry of civil aviation) permitting carriers to deploy 45 per cent capacity from July 1.
In May, domestic carriers hoped that once they resume operations, the traffic would gradually pick up. But that didn't happen. The domestic passenger traffic data for June fell 83.5 per cent as compared to last year. The July data is expected to be no different. Kinjal Shah, Vice President and Co-Head, Corporate Sector Ratings at ICRA says that the daily passenger traffic of domestic carriers ranges between 65,000 and 70,000 which is substantially lower than 3.94 lakh in 2019. "Airlines are not expecting any improvement in traffic; their general perception is that the revival is going to take time," says Shah.
What makes the situation more worrying is that if the largest and most-cash rich airline IndiGo has started firing people, it's sending a message to other airlines to follow suit. Mark Martin, founder of Martin Consulting says that for Indian carriers, the four biggest operating cost items are fuel, aircraft finance, maintenance and people. "Lufthansa which has a somewhat similar cost structure has retrenched 16 per cent of its workforce (22,000 people) recently. In the base case scenario, the domestic industry would see 10 per cent job cuts, and this number could go up to 20 per cent," he says.
28/07/20 Manu Kaushik/Business Today
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