Home / News / India /  Why there is no recovery in sight for Indian airlines

What do the traffic numbers say?

Average daily fliers were at 65,000 for the week ending 15 May, 2021, the peak of the second wave of covid-19. In comparison, 187,514 passengers took domestic flights on 11 January this year, showed data from the aviation ministry. However, this number is far below the 367,000 recorded in the week ending 25 December 2021. Airlines have reduced the  number of flights in the past few days due to declining traffic in the wake of Omicron outbreak. If covid cases surge further, traffic can slump even more. Travel restrictions imposed by state governments have also added to the decline.

What does this mean for airlines?

Aviation consultancy Capa India estimates airlines to report losses of $1.5-1.75 billion between October 2021 and March 2022. Among the listed airlines, market leader InterGlobe Aviation Ltd-operated IndiGo is expected to report losses of about 200 crore in the December quarter, according to ICICI Securities. Meanwhile, SpiceJet Ltd is likely to report losses of 440 crore in the quarter, according to Centrum Institutional Research.  A prolonged third wave will  result in further capacity reduction, hurt yields, and see the return of austerity measures like salary cuts.

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What sort of capital will the industry need?

Indian airlines are expected to report a combined net loss of 25,000-26,000 crore in FY22, and would need additional funding of 45,000-47,000 crore between FY22 and FY24 to sustain operations, Icra estimated. SpiceJet will require $400 million, while IndiGo may need to raise funds through qualified institutional placement, according to Capa India.

What else is complicating matters?

SpiceJet faces legal headwinds. The Madras high court has turned down an appeal against a December order to wind up operations—the airline failed to make payments of over $24 million to Swiss main-tenance, repair and overhauling service provider SR Technics. There is, however, a stay order on the ruling until 28 January, allowing SpiceJet to approach the Supreme Court. It also faces a lawsuit at the Delhi high court from aircraft lessor Goshawk and its trustee Wilmington Trust SP Services Dublin Ltd for unpaid dues.

What do the airlines businesses want?

They want a slew of measures: reduction of duty and value-added tax (VAT) on air turbine fuel (ATF); reduction of airport and air navigation charges; removal of a fare cap and inclusion of ATF under the good and service tax  as soon as possible. While the government failed to accede to most of the demands made by  the industry in the budget last year, it did announce tax incentives for aircraft leasing and financing from International Financial Services Centre in Gujarat’s GIFT City.

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