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BW Businessworld

Covid-19: Down To Earth

With the threat of the corona pandemic looming large in the country , Indian carriers have been completely grounded till 14 April to curb inland travel as part of a lockdown

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The Covid-19 outbreak has brought the global airline industry, like several other sectors, to a halt. Indian aviation is no exception. Authorities first suspended domestic air service for a week from the midnight of March 25 till the mid-night of March 31 and later extended it till April 14 in keeping with the 21-day countrywide lockdown announced by PM Modi. As a result, a bulk of the 680-plus passenger planes has been grounded to help stall the spread of the corona virus.
As such this is the worst crisis to hit the Indian aviation sector. So far, only cargo planes have been allowed to continue operations as they ferry precious cargo including medicines, food-supply and other essentials.

Globally, more than 12,000 commercial aircraft or nearly half the global fleet had been grounded at the time of writing this report. More maybe have been grounded as the virus is rapidly spreading, particularly in North America and Europe.

Between Air India, Vistara, IndiGo, SpiceJet and GoAir, there were roughly 603 commercial aircrafts (several hundred have been ordered and are in the pipeline) operating more than 2,600 daily flights until the suspension of services came. All these planes were grounded as on March 26. With proper parking slots in acute short supply, the aircraft have spilled out on to the runways that have been shut for the time being in the bigger airports of Delhi, Mumbai, Bengaluru, Kolkata, Chennai and several other airports.

Airlines listed on the bourses have already informed their shareholders of the adverse financial impact on the fourth quarter numbers and beyond. Within India, the commercial carriers are currently used by over 4 lakh passengers daily (based on February 2020 data) translating into an estimated average per day passenger ticket revenue of around Rs 150-160 crore roughly. If airlines suspend operations for 21 days, the corresponding losses would be thousands of crore of rupees. With people staying indoors, and all modes of commute ordered shut at least till April 14, the economic impact on the travel sector will be very large.

Mumbai-based GoAir has already suspended international operations between March 17 and April 15. The airline also said it was offering a temporary rotational leave-without-pay to its staff. It has already announced that it was terminating the contracts of expat pilots. As of January, the airlines reportedly had 600 pilots, with a large number of them of foreign origin.

Vistara, a joint venture between Tata Sons and Singapore Airlines, had suspended its international operations from 20 March 2020 till 31 March 2020 at the time of filing this report. IndiGo, SpiceJet, and Air India too have suspended their operations in line with the government directives.

What’s Happening Abroad? 
Singapore Airlines (SIA) has announced a 96 per cent cut in capacity up to end-April, given the further tightening of border controls around the world over the Covid-19 outbreak. This move, the company says, will result in the grounding of around 138 SIA and SilkAir aircraft, out of a total fleet of 147. The group’s low-cost unit Scoot will also suspend most of its service, resulting in the grounding of 47 of its 49 aircraft.

“It is unclear when the SIA Group can begin to resume normal services, given the uncertainty as to when the stringent border controls will be lifted,” the company said in a statement on March 23, adding that “the resultant collapse in the demand for air travel has led to a significant decline in SIA’s passenger revenues.”

Long-haul carrier Emirates suspended all passenger flights from March 25.

International aviation consultancy firm—Centre for Aviation or CAPA—has predicted a significant impact on the Indian airline industry, including grounding of 150 planes, retrenchments and an April-June combined loss of up to $600 million for carriers excluding Air India. But this report came before the government decided to ground all commercial aircrafts. The losses, therefore, would be significantly higher now.

Alexandre de Juniac, IATA’s Director General and CEO has already dubbed this period as “extraordinary times” requiring “unprecedented measures” as safety—including public health—is always a top priority.

On 5 March 2020, IATA estimated that the crisis could wipe out some $113 billion of revenue. That scenario did not take into account measures taken by the US and other governments (including Israel, Kuwait, and Spain) since then. The US measures are expected to add more financial pressure. The total value of the US-Schengen market in 2019 was $20.6 billion. The markets facing the heaviest impact are US-Germany ($4 billion), US-France ($3.5 billion) and US-Italy ($2.9 billion). Now that is completely shut.

“This will create enormous cash-flow pressures for airlines. We have already seen Flybe go under. And this latest blow could push others in the same direction. Airlines will need emergency measures to get through this crisis. Governments should be looking at all possible means to assist the industry through these extreme circumstances. Extending lines of credit, reducing infrastructure costs, lightening the tax burden are all measures that governments will need to explore. Air transport is vital, but without a lifeline from governments we will have a sectoral financial crisis piled on top of the public health emergency,” said de Juniac.