All Indian airlines will report significant losses in the first quarter of this year and may initially ground around 150 planes as the shock from the coronavirus pandemic will be “far deeper and much longer”, according to a report.
Aviation advisory firm CAPA India on Wednesday said consolidated losses are estimated to be in the range of USD 500-600 million for the quarter, excluding Air India.
In a report, it said that some airlines may choose to temporarily shut down their operations by design on the basis that demand is so low that such action would result in reduced losses than if they continue to operate.
As per the report, even before COVID-19 (coronavirus) appeared on the scene, most Indian carriers already had very strained balance sheets and almost no liquidity.
“This latest shock will once again expose the vulnerability of India’s aviation system as happened during the fuel price spike in 2008. But on that occasion the shock was short-lived, even if its impact reverberated for several years. This time, the shock itself will be far deeper and much longer,” it said.
In the wake of significant reduction in services, the report said Indian carriers might initially ground around 150 aircraft, and the number is expected to increase as more domestic operations are curtailed over the coming weeks.
At present, the combined fleet of six major domestic carriers stands at around 650 planes.
“If the decline in traffic continues to be severe, the majority of the fleet could be grounded by April,” it noted.
While noting that it does not want to be “alarmist,” CAPA India said the situation continues to deteriorate.
In India, the number of coronavirus cases rose to 151 on Wednesday. Close to 8,000 deaths have been reported worldwide due to the pandemic and many countries, including India, have imposed travel restrictions.
Against this backdrop, Air India and IndiGo have cancelled some of their international flights while GoAir has temporarily suspended its overseas services.
CAPA India noted that all Indian airlines would report significant losses in the first quarter even with oil prices at around USD 30 per barrel.
“At an industry level, consolidated losses are estimated to be in the range of USD 500-600 mn for the quarter (excluding Air India). However, these are very preliminary estimates and are subject to further downward revision.
“In the absence of serious and meaningful government intervention, such an outcome could lead to several Indian airlines shutting down operations by May or June due to a lack of cash,” it said.
Further, the report flagged the possibility of retrenchments in the domestic airlines industry.
Reduced scale of operations could impact the requirement for around 30 per cent of airline staff and up to 50% of ground handing staff.
For the first couple of months, this could potentially be handled through mandatory leave and leave-without-pay initiatives for 1-2 months. But should the situation continue beyond a few weeks, it would quickly result in short-term retrenchment, it added.
“By extension, the reduced scale of operations could impact the requirement for around 30% of airline staff and up to 5% of ground handing staff.
“… an extended downturn will inevitably lead to significant redundancies,” it added.
In case the severity of the coronavirus outbreak increases, CAPA India said that regardless of any fiscal concessions and support that the government might offer, most airlines would have to shrink their operations, and the more vulnerable carriers may shutdown.
Further, the report said that yield in the first two weeks of this month are down by 12-15%, and could deteriorate by 25% or more in the coming weeks.
Generally, yield refers to average fare paid per passenger.
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