Wednesday, July 14, 2021

For India’s COVID-hit Airlines, the Flight Path Continues to be Turbulent

As the vaccination rollout gets underway, India’s airlines are hoping against hope that travel demand starts showing some semblance of normalcy. Yet most indicators point that it will be a while before that happens. One or more airline failures cannot be ruled out and the botched bankruptcy of Jet Airways and the much-delayed sale of Air India have only complicated matters. Between a market structure that is tending towards a duopoly and rising input costs, the flight path for India’s airline continues to be unsettled. There are all kinds of elements that have to be navigated.

The vaccine shortages in the first half of the year combined with the second wave that hit India in April and May this year impacted business and growth drivers. Unlike Europe and America, lack of any job protection scheme or money-in-the-pocket scheme for citizens or airlines meant continued stress. An emergency credit guarantee scheme was extended to airlines towards the end of May 2021, but it was too little, too late. At most, it allows access to a line of Rs 200 crore with stringent conditions. Two airlines have applied and are likely to get through although the amounts that will be sanctioned remain to be seen.

On the economic front, job losses and salary cuts resulted in a contraction of the middle class. It was the middle class and the consumption patterns that were driving aviation. Occupancy factors again took a nosedive and airline revenues dissipated. Even so, some point to the concept of “revenge travel” and large number of tourists flocking to destinations. And while revenge travel is real, these data points are anecdotal and cannot be construed as correlations. Overall, the situation for India’s airlines is extremely dire.

A system can withstand shocks but starts to weaken significantly with constant shocks. Such has been the case with the airline industry in the wake of COVID-19 and lockdowns, followed by varied protocols for travel. The first shock came with the onset of COVID in March 2019, and the lockdown amplified this. Skies were closed, flights were suspended and airports were eerily silent. As domestic skies opened up from the end of May 2020, albeit with capacity and price caps, there was a trickle of activity. Thereafter, each month showed a gradual improvement. Travel demand rose slowly and steadily and the narrative became one where everyone started believing that the worst was over. That was till the second wave again delivered a shock and forced a reset.

The second wave hit families particularly hard and with a peak in cases, ICUs running to full capacity and social media amplifying messages tenfold, it was unlike anything the country had experienced. Travel once again saw a decline and indeed it was the last thing one thought about. As states finally brought COVID cases to a manageable level, each imposed varied arrival procedures and travel started becoming more cumbersome. Altogether, the second wave was one more shock the airline industry did not need but had to deal with anyway.

14/07/21 Satyendra Pandey/

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