The impact of the coronavirus on Indian aviation has been considerable. In the span of just three weeks, airlines have suspended international travel and cut domestic schedules. These moves come as governments place more restrictions on travel and the coronavirus shows no signs of slowing.
How bad will this get, and for how long?
The trillion-dollar question in today’s world is how long will the coronavirus continue to spread? In India’s case, the number of cases only seems to be growing every day and shows no signs of slowing. This has caused the aviation industry to go into a tailspin, with demand evaporating overnight and stocks nosediving. However, things are only set to get worse in the coming weeks.
According to the Center For Aviation (CAPA), demand will fall 50% in the coming months. This will result in most airlines collapsing by May without any substantial government intervention. As India bans more travel, the international market will fall 70% and domestic by around 50%. Moreover, airlines will have to slash fares by nearly 25% per kilometer and ground a majority of their fleet. The only thing that is preventing airlines from collapsing earlier is the price of crude oil, which is at its lowest in recent history.
How are airlines dealing with the situation?
Airlines around the world have had a similar response, cut international routes substantially and scale back domestic operations. Most Indian airlines have followed the same idea. GoAir and Vistara have completely suspended their international routes while reducing domestic ones.
SpiceJet has also canceled all but a handful of international routes, while it evaluates its domestic routes. IndiGo, the country’s largest airline, has announced a 15% pay-cut for all staff and also cut around 70% of its international flights.
Air India has cut its cabin crews allowances by around 30-40% and withdrawn benefits from senior pilots, while also cutting all European and Asian flights from major cities and has been unable to pay salaries. AirAsia India, the venture between AirAsia and the Tata group, has announced it will stop expanding its fleet.
Most airlines have aimed to increase their cash flow at the time. Carriers like GoAir have laid off a number of its staff and pilots, while IndiGo has cut salaries across the boarding. Others are bound to follow suit with more cost-cutting measures, including deferring plane deliveries and ground more aircraft.
Will the government bailout airlines?
The Indian government is indeed in the process of negotiating a bailout package for airlines. This will likely include a temporary suspension of government-imposed taxes as well as deferred payment of taxes such as fuel surcharges.
The move will provide a short-term impetus to the carriers, but airlines will need a lot more to survive. If the situation drags on, airlines will likely require aid in the form of direct capital to continue paying salaries and keeping planes in the sky. However, the government’s prompt response will definitely help airlines survive in the next few weeks.
The IATA has said the industry will need nearly $220bn to survive the coronavirus storm, without which we will see airlines collapse. In India, GoAir and SpiceJet seem to be most at risk of biting the dust. SpiceJet, the second-largest airline in India, is particularly at risk, with a weak balance sheet and its share price falling over 75% from its high.
What do you think the future of Indian aviation will be? Could we see airlines fold and fewer players in the market?