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How bad is the impact of coronavirus on India's airlines?

Aviation is among the worst-affected sectors amidst the Covid-19 crisis.

ETMarkets.com|
Last Updated: Apr 10, 2020, 03.05 PM IST
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Airfares have also come under pressure due to nearly 30 per cent drop in bookings to virus-affected destinations.
The impact of the coronavirus pandemic and the lockdown it triggered is clearly visible in financial markets. But there is still no clarity on the deeper impact that it is having across businesses and industrial sectors. Based on assessments made by different analysts and industry body Ficci, here is an impact analysis of the aviation sector.

  1. How severe is the lockdown impact on airlines?
    • Aviation is among the worst-affected sectors amidst the Covid-19 crisis that has taken the scale of a pandemic. According to the International Air Transport Association, airlines globally can lose in passenger revenues of up to $113 billion due to this crisis.
    • Airfares have also come under pressure due to nearly 30 per cent drop in bookings to virus-affected destinations. As a result, airfares to such destinations have fallen by 20-30 per cent. Domestic traffic growth is also gradually being affected with domestic travellers postponing or cancelling their travel plans.
    • Some companies have reported more than 30 per cent drop in domestic travel this summer compared with last year. Airfare in the popular domestic routes have been reduced by 20-25 per cent and airfares are expected to remain subdued for the summer season as well. Cash reserves of airline companies are running low and many are almost at the brink of bankruptcy. Moreover, the crisis could lead to loss of jobs and pay cuts. Some airlines have asked many of their employees to go on leave without pay. Air Deccan has suspended operations and sent employees on unpaid leaves.
  2. What is the near-term outlook for airlines?
    • While some airlines have started accepting advance bookings in anticipation of easing of the lockdown after April 14, Motilal Oswal said post the lockdown, domestic operations (mainly on key/metro routes) should see a staggered start to operations.
    • Indian carriers are using a hawk-eyed approach in resuming domestic operations; however, the rate of PLFs will be a key concern. The brokerage said its airfare tracker suggests average yield across metro routes has declined by ~30% year to date for both 30-day/15-day ticketing windows.
    • For Indian carriers, Q1 is typically the strongest period while Q2 is a weak quarter. As the lockdowns/shutdowns are playing out in Q1, the brokerage expects gradual improvement in the dynamics of the Indian aviation industry only from Q3 of FY21.
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