India's ailing aviation industry hits air pocket

Coronavirus piles pressure on industry reeling from tepid travel demand, cash-flow problems

Passengers boarding an IndiGo aircraft at Indira Gandhi International airport in New Delhi. The Indian airline, which has the biggest domestic market share and an enviable profitable run, announced a pay cut for its senior employees last Thursday.
Passengers boarding an IndiGo aircraft at Indira Gandhi International airport in New Delhi. The Indian airline, which has the biggest domestic market share and an enviable profitable run, announced a pay cut for its senior employees last Thursday.PHOTO: AGENCE FRANCE-PRESSE

India's aviation industry had been tipped to become the third largest air passenger market by 2024 with demand growing by double digits in recent years but the high-flying times are fast coming to an end.

Domestic passenger growth fell to just 3.74 per cent last year, compared with 18.6 per cent in 2018, figures that have cast a gloomy outlook on a sector that had become habituated to dizzying growth.

An ominous sign came when Jet Airways, the country's largest international and second largest domestic carrier, went belly up last April. Since then, demand for air travel has been tepid because of a slowdown in the Indian economy.

Intense competition between the airlines, despite strained balance sheets and little liquidity, has not helped either.

Now a downturn precipitated by the coronavirus pandemic threatens to send the ailing industry into a tailspin. A new report last week from the Centre for Asia Pacific Aviation India (Capa India) said the country's aviation industry could see a fall of around 50 per cent in domestic air travel demand in the next six to eight weeks.

It also noted that while year-on-year yields had already fallen by around 12 per cent to 15 per cent in the first half of March, revenues could further deteriorate by 25 per cent or more.

Combined with a fall in international capacity to and from India, Capa India predicts Indian carriers may have to ground around 150 aircraft, including almost all of their international fleet.

This number is expected to rise as more domestic operations are curtailed over the coming weeks.

"If the decline in traffic continues to be severe, the majority of the fleet could be grounded by April," said the report. It warned that the situation could deteriorate quickly, causing a significant downward revision for its estimates.

This grim analysis comes at a time when the Indian government, according to a Reuters report, is working on a rescue package worth 119 billion rupees (S$2.3 billion) for the country's aviation sector, besides considering temporarily suspending tax payments to help tide the industry over the coronavirus crisis.

Airlines asked the government this month for a 30 per cent reduction in aeronautical charges for six months. Capa India has also recommended that the government revise aviation turbine fuel prices on a weekly basis, so that airlines can take advantage of lower rates as soon as they become available.

 
 

SURVIVAL AT STAKE

Signs of severe stress are already evident. IndiGo, the airline with the biggest domestic market share and an enviable profitable run, announced a pay cut for its senior employees last Thursday.

"With the precipitous drop in revenues, the very survival of the airline industry is at stake," IndiGo chief executive Ronojoy Dutta reportedly told the company's employees in an e-mail.

GoAir, another Indian airline, has asked some of its employees to take short-term leave without pay. It has also suspended all its international operations.

The Capa India report said the reduced scale of operations could have consequences for about 30 per cent of airline staff and up to 50 per cent of ground handling employees. While this could be managed for the first couple of months through mandatory leave and leave-without-pay initiatives, an extended downturn "will inevitably" lead to significant redundancies, it added.

Even airport operators in India are reeling from a cascading impact of the coronavirus-prompted downturn in aviation business.

"We are facing a massive cash flow problem," Mr Satyan Nayar, the secretary general of the Association of Private Airport Operators, told The Sunday Times, adding that the association plans to ask the government for a moratorium on concession fee payment.

Privately managed airports pay the government a certain fee. Delhi Airport, for instance, pays a revenue share of around 46 per cent to the Airports Authority of India.

"This is paid not on the basis of the actual revenue generated but on a business plan submitted in advance. Moreover, the revenue share payment has to be made in advance," Mr Nayar said, adding that airports have to pay for certain fixed costs - such as those incurred on maintaining runways and aprons - despite reduced air traffic.

"We also have many concessionaires at our airports that purely depend on footfall for their business. They are going through a financial crisis and seeking a moratorium on their rent and other payments."

 
 

However, some extra revenue generation measures proposed by the aviation industry in India have been controversial and deemed unfair to passengers. One move discussed by Indian airlines, according to a media report, would ask passengers travelling with luggage to pay a separate handling fee. But this has raised eyebrows.

"It is unfair to put these additional costs on air passengers at a time when everybody and every business is under stress," said Mr D Sudhakara Reddy, the founder and national president of Air Passengers Association of India.

"These additional charges on passengers are not going to raise much revenue when operations have been curtailed and the passenger load factor has come down.

"How much are you going to fleece a person who is daring enough to take a flight and must be doing so for an emergency? How can you punish someone like that?"

A version of this article appeared in the print edition of The Sunday Times on March 22, 2020, with the headline 'India's ailing aviation industry hits air pocket'. Subscribe