A day after IndiGo announced that it would lay off 10% of its employees owing to the financial crisis caused by the Covid-19 pandemic, the Centre of Asia Pacific Aviation (CAPA India) – a global aviation consultancy – on Tuesday predicted that the shutting down of one or two Indian airlines would be unavoidable in the near future.
“Industry conditions are such that one or more airline failures appear inevitable. Airlines have limited options to turn to for funding except their promoters, given that 3rd party investors will be reluctant to provide capital right now, and the government is unwilling to do so,” read a tweet from CAPA.
CAPA India stated that the decision is the “beginning of a painful process for Indian aviation”. “The decision by IndiGo to lay off 10% of its staff is the beginning of a painful process for Indian aviation as things start to unravel from the impact of Covid-19 in India. It will be impossible to survive this crisis without a strong balance sheet,” read CAPA’s another tweet.
Airlines are struggling since March, after the Covid-19 lockdown was announced. Even after domestic operations partially resumed from May 25, most aircraft are on the ground, as airlines are operating with only 60% of their capacity, owing to the poor load factor.
“Even as the state allowed 50 take-offs and 50 arrivals from Mumbai, not all airlines are operating their planned flights, as demand is low,” said a senior official of an airline, who did not wish to be named.
The six major airlines operating in the country currently are AirAsia India, IndiGo, Air India, SpiceJet, GoAir and Vistara. Additionally, India also sees operations of smaller airlines such as TruJet, Air Deccan, Zoom Air and Star Air. A bulk of air traffic is carried out by large private airlines.
Though CAPA-India did not elaborate if the financial brunt will be borne by large or smaller airlines, its chief executive officer Kapil Kaul said, “With Indigo deciding to further boost liquidity and strengthen its finances by raising funds, and at a later stage also monetising aircraft and engine assets, it is preparing to deal with this crisis. The government may further restructure loans, but it is unlikely that it will provide financial assistance directly or indirectly. So industry consolidation is inevitable and the emergence of Covid-19 has expedited the process.”
According to Jitender Bhargava, former executive director of Air India, airlines that fail to take drastic measures now to cut costs will fail to survive in the long run. “When there are very few people flying, airlines have to consider cost cutting measures such as downsizing their aircraft, giving pay cuts and laying off staff, as there is no other way for them to sustain. IndiGo’s decision to lay off 10% of its employees could be the beginning of a larger issue.”
Former instructor pilot and aviation expert Mohan Ranganathan said that the pandemic is likely to destroy the domestic air travel industry. “There won’t be any business or family travel and people won’t go on tourism either. Without international connectivity, Indian aviation will never take off. And at the rate in which airlines are suffering losses, CAPA’s prediction about airlines closure is right. According to me, three airlines will fold up shortly,” he said.
Foreign airlines have also borne the brunt of the pandemic. Chile’s Latam airline, Air Mauritius, Virgin Australia and South African airways are among the few foreign airlines that have shut operations owing to the ongoing crisis.
“The situation is intense worldwide and has adversely affected many airlines. In India, it is difficult to see an increase in load factor as passengers are scared to travel by air. The situation will largely continue till the year-end, with the international sector remaining closed and this which will further lead to job losses in the industry. As a result, airlines will find it extremely difficult to sail through the pandemic phase,” said a former Directorate General of Civil Aviation official.