Business Today
Loading...

Domestic airlines may need $3.5 billion funding: CAPA

The Centre for Asia Pacific Aviation (CAPA) had in late April said that Indian airlines, excluding IndiGo, will need to raise a minimum of USD 2.5 billion to survive the temporary grounding of the operations due to the lockdown imposed to contain COVID-19 spread

twitter-logoPTI | July 4, 2020 | Updated 00:12 IST
Domestic airlines may need $3.5 billion funding: CAPA
Representative Image

Domestic airlines, excluding IndiGo, may require funding requirements to the tune of USD 3-3.5 billion, with travel demand likely to remain subdued until the September quarter and no certainty of revival in the second half, aviation consultancy CAPA said in a report on Friday.

The Centre for Asia Pacific Aviation (CAPA) had in late April said that Indian airlines, excluding IndiGo, will need to raise a minimum of USD 2.5 billion to survive the temporary grounding of the operations due to the lockdown imposed to contain COVID-19 spread.

Stating that the demand-related risks are much higher than its earlier estimates, CAPA said the outlook remains "soft" as the recent traffic (after the resumption of domestic services from May 25) mostly comprised those passengers that were stuck in the "wrong" place at the time of imposition of lockdown on March 25, and started returning to their home base.

"Our earlier funding estimate proved to be conservative. Revised requirements are now likely to be in the range of USD 3-3.5 billion," CAPA said in the report.

On the fund requirements for IndiGo, which it had earlier not quantified, CAPA said, "IndiGo is likely to raise USD 400-650 millions by monetising its aircraft and engine assets."

Estimating the April-June losses of the Indian airlines at around USD 1.50-1.75 billion, it said that although some moderation in losses is likely due to waiver and deferrals of lease rentals and supplementary leases, salary cuts and staff being sent on leave without pay.

According to the report, domestic traffic is estimated to have reached only around 2.5 million passengers compared with 34 million for the same period last year, while the scheduled international operations remained grounded for the entire April-June quarter of the fiscal.

The domestic passenger flight services restarted from May 25 after a two months hiatus due to the lockdown in the wake of the coronavirus pandemic. The international operations, however, remained suspended since March 22 for similar reasons. The government on Friday extended the suspension of scheduled international flights till July 30. It, however, said that some international scheduled routes may be permitted on a case-to-case basis.

CAPA said that since the resumption of air travel on domestic routes, demand has been weaker than expected with the industry achieving a passenger load factor of around 55 per cent in Q1 FY21 and that while limited to 30 per cent capacity.

When the domestic services resumed, airlines were allowed to operate only one-third of their total per day capacity.

'Discretionary travel has been limited as reflected in the fact that more than 90 per cent of bookings have been for one-way travel, compared with 40 per cent prior to COVID-19," the report stated.

The pent-up demand for traffic has proven to be less than expected, largely due to inconsistent and confusing state-wise quarantine requirements, which have regularly changed, the report said, adding that with the number of daily new COVID-19 cases in India accelerating, consumer confidence is weakening.

Traffic in metros has been impacted more significantly than non-metro traffic, primarily because metros have seen the largest outbreaks of the disease and are considered to be higher risk, said the report.

It also said that the temporary cap on airfares was impacting demand and if the ceiling continues beyond August 24, it may be a greater hit in the second quarter as demand is historically weak during this period.

"Continuing with price control beyond August would be a strategic mistake by the regulator which could further harm airlines' financials,'' CAPA said.

The government had categorised all domestic routes into sector (bands A to G) based on flight duration and accordingly fixed fares with Rs 2,500 at the lowest band and Rs 18,500 at the highest band, for a period of three months, starting May 25 in its bit to check both steep hike in case of high demand and and predatory pricing in case of low demand by the domestic airlines.

Also Read: ICMR wants a miracle - A COVID-19 vaccine by August 15

Also Read:Gold outperforms Sensex; spikes 672% in 15 years

Also Read:BT Insight: Quant funds outperform benchmark; should you invest?

Youtube
  • Print

  • COMMENT
BT-Story-Page-B.gif
A    A   A
close