Saturday, August 01, 2020

Will the Indian aviation sector be reduced to 2-3 players?

The aviation sector is flying through turbulence that seems to find no landing any time soon. In a report by CAPA, the industry expert says Indian aviation will shrink to 2-3 players without funding. This, they believe, will result in a sustained damage to connectivity in India. Highlighting the financial strain Indian carriers are facing, sources tell ET NOW that SpiceJet will now have to pay around Rs 60 Lakh every day to the Airport Authority of India to be able to operate their flights. The airline also needs to submit AAI a payment plan to clear their past dues.

In a discussion with Tamanna Inamdar on India Development Debate, Ajay Awtaney, Founder, says he expects only IndiGo, Vistara and Air India will be able to survive this storm. “IndiGo is cash-rich. They are doing the right thing by raising liquidity and have also taken cost-cutting measures. Vistara too is in a good position right now. They are bleeding financially but have the support of two strong backers. Air India, on the other hand, has the backing of the government”, explains Awtaney.

Jitendra Bhargava, Former ED of Air India points out the sector will not be seeing any M&A action now as all airlines are in a very sad state with surplus capacity and employees, shrunk net worth and fewer passengers.
The demand destruction can be gauged from the fact that even after resumption of domestic air services; the load factor is hovering at 50-60%, says Crisil. The flow of travel is primarily unidirectional and limited to largely essential travel. The report also says that the fare-caps implemented by the government are higher on-year today. Awtaney backs this by saying that a Mumbai-Delhi flight which used to be priced around Rs 3,000 pre-COVID is now flying at Rs 4,000. “It is catastrophic for airlines if you are going to regulate ticket prices and tell airlines you can’t fly the schedules you deem fit”, Awtaney remarks.

IATA reports that passenger demand in Indian aviation will contract 49% in 2020 as compared to the previous year. It says Indian carriers will see revenues decline by $11.61 in 2020 versus last year. “Need a trigger to start flights as business, leisure and social travel is not taking place”, Bhargava points out. While Crisil expects domestic demand in Q2 to remain subdued, it is expected to increase in Q3 and Q4 owing to the festive season. However, Indian carriers are expected to log operating losses this fiscal despite lower crude prices. A revival to pre-pandemic levels appears unlikely even in the next fiscal, adds Crisil.
01/08/20 Shivangani Misra/
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