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Civil Aviation: Challenges Galore

The year 2020 was very tough for the civil aviation sector, not just in India but globally as well. But 2021 may not be any better as the money-spinning long haul air traffic is unlikely to see recovery to pre-Covid levels

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The prognosis for the Indian civil aviation industry is pretty dire. Aviation consultancy firm CAPA predicts that consolidation is inevitable in the aviation sector, and that India could very well witness a "2-3 airline system" in the short to medium term horizon.

If the prediction turns out to be true, it may well mean higher airfares, more crowd at the airports, less choice, lesser connectivity options as those two or three players would want to operate on the profitable routes. Or it may well turn out to be just the opposite - with each player doing well in its network of destinations and a clear distinction between classes of air travel.

Credit rating agency ICRA said in a December 2020 report that the Indian airlines will post net losses of about Rs 21,000 crore during the fiscal year (FY) 2021 due to travel restrictions and impact on passenger traffic as a result of the coronavirus pandemic. However, the agency later stated that the net loss for FY22 may fall to Rs 14,600 crore on account of a 57 per cent increase in overall revenue due to increased air travel.  

On a global scale, 2020 was perhaps the worst year for the civil aviation sector. According to one analysis, as of 8 October 2020, 43 commercial airlines had gone bankrupt with several more expected to follow. In late October 2020, ACI Europe stated that 193 (mostly regional) of the 740 airports in Europe were also threatened with bankruptcy.

In early April 2020, more than 12,000 commercial aircraft or nearly half the global fleet had been grounded. Also, more than two dozen airlines across the world went out of business and had to shut shop, partly because of the pandemic and partly because of operational and financial issues that had already plagued the aviation sector before the pandemic forced grounding of airlines.
The global airline industry is expected to see a net loss of $118.5 billion in 2020, with a recovery of $80 billion estimated in 2021, according to data released by the International Air Transport Association (IATA). Despite the expected fall back, IATA says the industry is likely to experience a net loss of $38.7 billion next year, higher than that reported in 2008.

"The world-wide spread of novel coronavirus has severely impacted the airline industry, and the re-rise in cases in some parts of the world indicate a slower recovery going forward," IATA in a statement said. As per the report, the global revenue passenger kilometres (RPKs) have been estimated to have declined by 66 per cent - largest ever since World War II.

In October 2020, Cathay Dragon merged with Cathay Pacific after it ceased operations. In November 2020, Korean Air (with over 170 aircraft) parent Hanjin announced a $1.62 billion takeover bid for rival Asiana Airlines (82 aircraft) from Kumho Industrial thereby becoming one of the ten largest airlines in the world.

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Coming back to India, as mentioned, the Indian aviation industry may continue incurring huge losses in 2021-22 but IndiGo airline may emerge from the pandemic significantly stronger than its competitors, says CAPA India in its report.

"Airlines will have to carry the costs of a large proportion of their fleet remaining grounded, especially those that were earlier deployed on international routes," the report on ''top ten trends to watch in 2021'' says.

While revenue remains under pressure, costs will also increase relative to FY2021, the report mentions, adding that Brent crude is assumed to be at an average of $50-60 per barrel and the USD/INR exchange rate is expected to remain in the range of 73-75 in the next financial year. It must be noted here that the scheduled domestic passenger flights resumed in India from May 25 after a two-month gap due to the Covid-19 lockdown. Currently, the Indian carriers are permitted to operate 80 per cent of their pre-Covid flights.

So how are the numbers looking for domestic air travellers? According to aviation regulator DGCA, a total of 63.54 lakh domestic passengers travelled by air in November 2020, as per the latest data available at the time of writing this report. Of that number, IndiGo carried 34.23 lakh passengers and cornered nearly 54 per cent share of the total domestic market whereas rival SpiceJet flew 8.4 lakh passengers and clocked a 13.2 per cent share of the market. The occupancy rate at SpiceJet was 77.7 per cent in November 2020, the data shows. With carriers adding more routes, more aircraft, and flying more passengers every month, one can only hope for better times for the aviation sector.

Besides, there may be a couple of headline-making news on the anvil in 2021. The much-awaited change of guard for the national carrier Air India. The market buzz is that the original owners of the 'Maharaja', the Tata Group, may just emerge as a winner of the long-drawn tender process. Or there may be a different buyer. Whatever may be the final outcome, Air India, under a new management control may just take off in 2021 posing competition to the existing lot. Then, Jet Airways, under a new management/investor, is expected to begin operations towards the middle of 2021 as well. There is a lot that one needs to keep an eye out for in 2021.  

According to DGCA, a total of 63.54 lakh domestic passengers travelled by air in November 2020, as per the latest data available at the time of writing this report. Of that number, IndiGo carried 34.23 lakh passengers and cornered nearly 54 per cent share.

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