Wednesday, April 14, 2021

Covid second wave delays recovery of aviation sector in India

The Indian aviation will have to wait longer to reach pre-Covid levels of operations as the second wave of Coronavirus threatens to derail the gains made by the sector over the past few months with flyer confidence tanking again resulting in sharp drop in demand in the past couple of weeks.

As per industry estimates, demand for flying dropped by 13 per cent to 246,600 passengers in the last week of March 2021 (v/s the last week of February, 2021—when the peak was recorded), resulting in no month-on-month (MOM) improvement in traffic (still down 37 per cent to pre-Covid levels).

In April, 2021, demand further fell by 5 per cent from the last week's average of March, 3021 to 233,000 passengers per day, clearly indicating that flying is again getting out of fashion over concerns on the pandemic.

Moreover, the situation is also impacting yields for airlines. As per airfare tracker of Motilal Oswal Financial Services, yields in March increased by 2-5 per cent MoM, but down 13- 14 per cent QoQ in 4QFY21. This is despite the upward revisions in the floor of airfare bands in February, 2021 by 10 per cent and again in March by 5 per cent.

A spike in crude oil prices during 4QFY21 has further added to the negative sentiment, the brokerage said.

The sliding graph of air travel has again pushed airlines to seek government approval to lower capacity from present mandated 80 per cent to about 50-60 per cent, the same that operated during the early part of opening of sector post lockdown last year.

"Currently, around one-third of total states in India have imposed further lockdowns/restrictions - but operations in the sector have not been curbed. We keep our assumptions unchanged for now, with estimates of traffic recovering to pre-Covid levels by end of 3QFY22E. We reiterate our neutral stance on INDIGO - with the possibility of further delays in the recovery to pre-Covid levels," the Motilal Oswal report on aviation sector with focus around Indigo airlines said.

On a positive note, the report said that the pace of Covid vaccination drive would have positive impact on air travel and airlines as it will increase in confidence of flyers and increase travel demand.

To put this into perspective, around three months after the start of vaccinations in the US (32 per cent of the US population has received at least one vaccine dose): demand for domestic travel improved to 66 per cent of pre-Covid levels (from 39 per cent in Jan'21).

Demand for international travel is gradually improving (at 32 per cent of pre-Covid levels v/s 16 per cent in Jan'21). For now, tickets are mostly being sold to leisure destinations in Latin America and the Caribbean.

Recovery of international traffic is still contingent on the situation in other countries.

For India, only 16 per cent of international inbound and outbound passengers are from the US and Europe, while the majority are from developing nations, where achieving  70 per cent vaccination may take some more time than developed nations, further delaying demand recovery in India, the brokerage said. 

14/04/21 Tribune

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