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Covid-19: Capa India says second wave could lead to collapse of aviation sector

Capa India's report titled 'Key Trends in Indian Aviation in FY2022: Impact of Second Wave' says covid has inflicted massive losses and an increasing debt burden on carriers that were structurally ill-equipped to absorb the impact, (Bloomberg)Premium
Capa India's report titled 'Key Trends in Indian Aviation in FY2022: Impact of Second Wave' says covid has inflicted massive losses and an increasing debt burden on carriers that were structurally ill-equipped to absorb the impact, (Bloomberg)

  • The pandemic will also accelerate consolidation in the aviation industry resulting in two to three airlines operating in the domestic sector the aviation consultancy has said in a report

NEW DELHI : The ongoing second wave of coronavirus infections, which has brought the country's healthcare system to its knees, could precipitate a collapse of the domestic aviation sector, aviation consultancy firm Capa India said in a report on Monday.

This will also accelerate consolidation in the industry resulting in two to three airlines operating in the domestic sector, down from six major airlines and three regional carriers that currently operate in the space, it added.

"Most Indian airlines were already very vulnerable prior to covid, with weak balance sheets and poor liquidity. Covid inflicted massive losses and an increasing debt burden on carriers that were structurally ill-equipped to absorb this impact," said the report titled 'Key Trends in Indian Aviation in FY2022: Impact of Second Wave.'

"The extent of the challenge is reflected in the fact that Indian carriers under-recovered almost $70 per passenger in FY21," it added.

As things stand, fewer Indians took to the skies given the fresh surge in covid cases across the country for the sixth week in a row for the week ending on 1 May.

Average number of daily fliers stood at 126,000 for the week ending on 1 May, down from 152,000 for the week ending on 24 April, and less than 193,000 in the week ended 17 April, according to a report by ICICI Securities.

Average passenger load factor (PLF), an airline industry metric that measures how much of an airline’s passenger carrying capacity is used, stood at about 50% during the week ending on 1 May, the report added.

The entire industry will report serious losses in FY22, similar in scale to FY21, with a serious downside risk in the event of a protracted second wave, or the emergence of a third wave, the report said, adding that many Indian airlines will struggle to recover from two consecutive years of such massive losses.

"The severity and impact of the second wave will virtually close the doors for most aviation businesses in terms of access to lenders, in the absence of government intervention, which is unlikely," it added.

CAPA India had during last October projected that the Indian aviation industry will lose a combined $6 billion-$6.5 billion in FY21, of which airlines losses will account for $4 billion-$4.5 billion.

IndiGo will be the only Indian carrier to emerge from the coronavirus crisis significantly stronger relative to the competition, largely due to its very strong balance sheet, the report said.

"Consolidation is inevitable and will be strategic in nature. It could result in a 2-3 airline system in the near to medium term," it said, adding that the second wave is likely to accelerate the process of consolidation, and to an even greater strategic level.

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