Can Aviation Sector Recover the Covid-19 Hit – Pritish Jena(Student at IMIS)

The Sector which boost the economy of a country(especially for India, which is a fastest growing domestic market in the world) is the Aviation Sector which has been badly affected by the COVID-19. The COVID scenario has invariably redefined travel in terms of ‘Essential’  and Non-Essential. Interestingly only 30% of our travel was indeed essential with the majority of travel, including vacation trips, social visits and routine business meetings being termed as Non-Essential. Given the renewed understanding of the term “Essential travel”, the flying population will shrink to a bare minimum.

How has covid-19 hit the aviation sector?

How are airlines likely to fare financially?

·       India’s aviation industry is likely to post losses of $3 billion-3.6 billion.

·       Local air travel in the country will likely crash from 14 crore in 2019-20 to around 8-9 crore in the next financial year 2020-21 (which was in 2015-16).

·       Domestic carriers may incur losses of $1.75 billion in Q1FY21, followed by airports and concessionaires with losses between $1.50 billion-$1.75 billion.

·       Ground handling firms may report a loss of $80 million-90 million.

·       International traffic is expected to fall from approximately 70 million in FY 2020 to 35-40 million in FY 2021, and possibly lower.

·       Airlines globally will lose over $84 billion in FY20, the most in history, while losses for FY21 are estimated at $16 billion by IATA.

·       In mid-March, the International Air Transport Association (IATA) forecast a loss of $252 billion in revenue—44% of 2019 revenue. 

How are airlines and AAI addressing the crisis?

·       In the absence of a tangible government bailout package, airlines have been focussing on reducing costs, while gradually scaling operations. Such as:-

1.     Cancelling all regional and foreign tours until it is utmost necessary.

2.     Online training for employees instead of travelling to training centers.

3.     Maintenances cost to reduce by reducing the use of electricity, deducting night allowances, reducing Over-Time of employees etc..

4.     Loan Advance that was provided to employees at a minimal price in comparison to banks has been stopped until further notice.

5.     Annual function and other recreational activities has been cancelled until further notice.

·       Domestic airlines are also seeking volume discounts from vendors, renegotiating payment terms and seeking a waiver on annual cost escalations for high-cost components.

·       Have opted for the credit shell strategy instead of refunds. India's biggest airline is creating credit notes for every cancelled ticket, which flyers can redeem later any time up to a year.

Measures taken by AAI and Airlines during travelling (New travelling Guide Lines):

In this situation along with Security and Safety of the travellers, ‘Contactless Service’ is the priority of Airport authorities.

• Social Distancing of at-least 2mts.
• Reach the airport prior to 3hrs of check-in.
• Bag tags on your own and receive your tags online from auto check in bog as we as the boarding pass (which is sent to your phone as pdf file)
• Complete sanitized Airports as well as the bags which enters the cockpit.
• Temperature checking is done for 3times (Entrance, Check-in security, Boarding the plane).
• Most boarding is done from 1^st floor in a queue formation where the Aeroplane is filled from backside and while leaving people come out from the beginning (LIFO-Last in first Out method).
• The middle seat person is given an extra PPE suit to wear along with protective kit.
•  No food is severed onboard, only water.
• After landing and getting of the plane they have to go the govt security to get the quarantine tag.

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How to recover from this situation?

• Govt help- countries like Australia, New Zealand and Singapore, have announced relief packages to the tune of $460 million, $360 million and $82 million respectively. In the US, the Trump administration has reached an agreement in principle with major airlines for a $25-billion dollar bailout package. FICCI has urged the government to immediately provide direct cash support to Indian carriers whereby the airlines can meet their fixed costs, at least for the period where the loss of revenues and liquidity is directly attributable to the government’s directive to cease operations.
• A moratorium for the next 12 months on all interest on the principal amount of loans without limitations of size or turnover through a direction to all financial institutions.
• VAT on ATF by state governments, which ranges from 0-30 per cent, should be rationalised with immediate effect to a maximum of 4 per cent across all states for the next six months.
• Aviation turbine fuel needs to be brought under the ambit of 12 per cent GST, with full input tax credit on all goods and services.
• Support the airlines and other-aviation related companies by paying or taking care of salaries of the employees for a period of six months. This will allow employee retention and is being done in a lot of countries.
• To go to manufacturers of aircraft, to go to suppliers of services, to airports around the world and re-negotiate the arrangements that we have with them given the fact that we are such a large domestic market as opposed to several airlines around the world, which are really based on connecting traffic.
• They should start by determining the optimal size and dimensions of their networks and fleet, and they should do so within the next few weeks. They should make big decisions—including which fleet types to recommission first and which routes are most likely to recover—on the basis of several demand and market structure scenarios and while optimizing for free cash flow. Digital support tools can provide network and fleet teams with the data-driven, granular simulations that help companies make the right big decisions on short notice.
• At the same time, airlines should consider M&A and consolidation opportunities. We expect that leading airline groups will be reviewing options, including potential divestitures and the sale or purchase of minority equity stakes.
• The next step is to resize and restructure the operating model and organization using a zero-based approach, which can be done in a matter of weeks. For example, BCG helped one global network carrier to redesign the entire organization—including process redesign, organization size, and structure—in four weeks. The same approach can also be applied to procurement (in order to manage external providers) and technology. This work adds value that will remain well after the crisis is over.
• Airlines should also prepare for ramping up, once airports and countries reopen. Our work with several leading carriers reveals that the period of ramping up will be even more challenging and dynamic than the one for ramping down. Network redesign (which typically occurs from 4 to 13 times a year, with time to subsequently validate and hand over the schedule to resource providers) will now likely have to be done weekly. What’s more, the time between developing and implementing the plan may be only a week or two—and will have to be accomplished despite the displacement of aircraft and staff. Designing this process, and again leveraging digital tools to make the right trade-offs, will be a major challenge that airlines will need to address as soon as possible.
• Finally, of course, finance teams will need to be closely involved to protect cash levels, capture revenues as soon as possible, and delay cash-outs as much as possible. Airlines should establish a project management office to manage cash until the environment stabilizes and regular financial processes and routines can be implemented once again.
• In future, Immunity passports could be included as temporary bio-security measures.

Conclusion:

The aviation industry may take between six months to two years to recover from the severe blow dealt by the corona virus pandemic, according to a survey carried out by global consultancy ICF. From the time skies are opened once again to point when the Vaccine is found, the passenger traffic pattern may at best see a gradual climb, depending on the Confidence building measure taken by aviation administrators and airlines in particular. I think once we are through with this, there is a terrific opportunity because India has really shown the world that it can be a disciplined nation, that it can be a leader in its own right and it can be a country which needs to be emulated by so many others. So, I feel, there is always an opportunity in every adversity and perhaps this is India’s chance to show to the world that we can be a responsible and mature leader of the world.