Home / News / India /  Aviation sector sees losses of up to $3.6 bn in June quarter

NEW DELHI : India’s aviation industry is expected to post losses of $3-3.6 billion in the June quarter with airlines sharing the bulk of the hit following a raft of travel restrictions and diminishing travel appetite because of the COVID-19 pandemic, aviation consultancy Capa India said on Wednesday.

Domestic carriers are forecast to incur losses of about $1.75 billion next quarter, followed by airports and concessionaires with losses of between $1.50 billion and $1.75 billion, according to Capa India. The ground handling industry could report a loss of $80-90 million during the same period.

These estimates for the potential sectoral losses assume that all domestic and international operations remain grounded until 30 June, Capa India said in the report titled ‘Projecting the potential financial impact of COVID-19 on Indian aviation’.

“Most Indian airlines have not structured their business models to be able to withstand even regular shocks, such as elevated fuel prices or economic downturns, let alone once-in-a-century events," the report said, referring to the global outbreak of the viral disease.

“With global aviation almost grinding to a halt, and for what could be an extended period, this is a state of affairs that will heighten risks for even the strongest carriers in the world. Meanwhile, several weaker airlines are likely to exit," it said.

Indian airlines are not prepared for the kind of severe systemic shock that it currently faces, and the fallout of the COVID-19 pandemic will have an impact on the entire aviation value chain, including airport operators, duty free shops, retail, food and beverages, and other airport concessionaires, ground handlers, the maintenance, repair and overhaul industry, inflight catering companies, as well as ticket distribution platforms, Capa India said.

“The entire sector is now in a state of crisis, which will certainly impact FY2021 and quite possibly well beyond," the report said.

Mint had on 25 March reported that airlines in India are staring at a potential collapse in the aftermath of the COVID-19 outbreak, quoting industry officials.

Wadia Group-controlled GoAir on Wednesday told its staff that all its employees will have to take a pay cut in March. “Under the current conditions we find ourselves in we are left with no choice but to extend salary cuts for all of us for the month of March. We will ensure that the lowest pay grades suffer the least," the airline’s chief executive officer, Vinay Dube, said in a mail to the airline’s staff.

Dube’s mail to his employees came a day after the Indian government initiated a 21-day lockdown to contain the spread of COVID-19. All airlines are expected to ground their fleet during this period.

A senior airline official said that only two airlines, IndiGo and GoAir, are proactively taking tough steps to conserve cash.

“Other airlines like state-owned Air India could get further cash infusion from government, which will help it stay afloat while those like Vistara have deep pocketed promoters," the official said, requesting anonymity.

“The airlines with weaker balance sheets may not survive the crisis," the official said.

COVID-19 is expected to affect even carriers with strong balance sheets, Capa India said in its report.

“In the event of a 3-month shutdown, the two listed carriers alone, IndiGo and SpiceJet, could report combined losses of $1.25-1.50 billion across 4QFY2020 and 1QFY2021," it said. “IndiGo’s hitherto enviable free cash reserves may almost be wiped out," it said.

Tata Sons, which operates two airlines, Vistara and AirAsia India, in a joint venture with Singapore Airlines and Malaysia’s AirAsia Berhad, could be further compelled to rationalise its portfolio and operate just one airline, while the government’s planned divestment of national carrier Air India Ltd could be postponed beyond FY 2021, Capa India said.

“In the short term alone, Air India could conservatively require financial assistance of more than $1.5 billion to survive," it added.

According to aviation industry body The International Air Transport Association (IATA), the airline industry globally is expected to lose up to $252 billion in revenue this year because of the impact of the COVID-19 pandemic.

“Airlines are desperately trying to survive in the most difficult times imaginable. We have the people and the experience to see this through," IATA’s director general Alexandre de Juniac said on a telephonic media briefing on COVID-19 on 24 March.

“But, to be perfectly frank, we don’t have the money. And we need governments to bridge us to the point where we can start to recover," he said.

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