Aviation sector to report over Rs 8,200 crore losses in just three months

Aviation sector to report over Rs 8,200 crore losses in just three months

The losses will be primarily attributed to the curtailed flight schedules, slide in new bookings, large-scale cancellations, and rescheduling of flights in the wake of coronavirus

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As the coronavirus crisis affects the global aviation industry, the Indian carriers are equally feeling the heat of the global pandemic. As per global aviation consultancy CAPA, the private domestic carriers are expected to post consolidated losses of up to $600 million (Rs 4,500 crore) in just one quarter. This doesn't include Air India's expected losses. Air India controls 11.6 per cent domestic market share, and 51.88 per cent in the international segment (among domestic carriers) along with its subsidiary Air India Express.

According to some estimates, Air India earns over Rs 1,230 crore a month from international operations. Since the coronavirus outbreak, the national carrier has nearly suspended all of its international flights which would lead to a loss of an estimated Rs 3,700 crore over three months.

The losses will be primarily attributed to the curtailed flight schedules, slide in new bookings, large-scale cancellations, and rescheduling of flights in the wake of coronavirus. So far, the biggest impact has been felt on the international side of the carriers like IndiGo, Air India, SpiceJet, GoAir and Vistara. But as the panic of community transmission of Covid-19 grows in India, there's a strong possibility of domestic airlines curtailing their domestic flight schedules as well. CAPA has predicted that nearly 150 planes will be grounded initially by Indian carriers, and the numbers are likely to swell as more domestic operations are curtailed over the coming weeks.

"In the absence of serious and meaningful government intervention, such an outcome could lead to several Indian airlines shutting down operations by May or June due to a lack of cash," CAPA said in a report.

The situation is likely to be grim at the Air India which had, in January, floated the sale document for 100 per cent stake sale. Although the government has already extended the deadline to submit the final bids to April 30 (from March 17 earlier), it's unlikely that anybody would bid for the national carrier in the middle of a crisis situation. "The government will need to commit significant and immediate interim funding of $300-400 million (Rs 2,250-3,000 crore) for the national carrier to ensure that it is able to operate at least in its current condition until such time as the sale transaction is concluded," says CAPA.

As on November 2019, Air India was flying to 98 destinations - 56 domestic and 42 international. Its domestic departures were 2,712 per week whereas international departures stood at 450 per week. The international segment contributes over 65 per cent of the Air India's passenger revenues.

The coronavirus outbreak would also severely impact the employment scenario in the aviation sector, and the airlines would be forced to ask employees to take mandatory leave and leave-without-pay for one-two months till the crisis subsides. Low-cost carrier IndiGo and GoAir have reportedly asked employees to take pay cuts of 5-25 per cent. In a letter to employees, IndiGo CEO Ronojoy Dutta has reportedly announced salary cuts across different grades while he is himself taking a cut of 25 per cent. Air India too has reportedly asked its crew to take 30-40 per cent cut in allowances.

Meanwhile some reports suggest that the ruling BJP government of Prime Minister Narendra Modi is mulling over $1.6 billion rescue package for the aviation industry. Though sector experts say that it's unlikely that an out-and-out bailout will be announced at the moment. "For aviation companies, the revenues are drying up but the costs are still there. I don't think the government will come out with any financial support given their fiscal position which leaves less room for an aid. They are already supporting Air India which is a huge financial burden. If at all, they would announce some concessions," says Dhiraj Mathur, aviation expert and former partner at PwC.

In a letter to the aviation secretary dated March 13, the board of airline representatives in India had asked for relief measures in the form of 30 per cent reduction in aeronautical charges for six months. "Passenger uplifts have dipped considerably which has badly affected the cash flows of the airlines...The airlines are in the brunt of a recessionary situation with decreased travel demand and lower yields," the letter said.

Global aviation body IATA (International Air Transport Association), which represents some 290 airlines or 82 per cent of total air traffic globally, has estimated $113 billion of losses for global airline industry in 2020 (as on March 9), which is significantly higher than its previous estimates (in February) of $29.3 billion losses.

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