With India’s aviation industry flying through troubled skies, sectors that are dependent on airlines have now started to feel the heat.
The Indian aviation industry is in the midst of a major slump due to the Covid-19 pandemic. The country’s largest airline, Indigo, has laid off 10% of its employees, while state-owned Air India is reportedly considering sending some of its staff on leave without pay for up to five-years.
With little hope of revival any time soon, companies that provide cargo-handling services to airlines and portals that sell air tickets are struggling to pay employee salaries and manage overheads.
“Being a labour and capital intensive industry, our cost base is very fixed by nature. Other fixed costs like airport fees and licenses related commitments put an extra burden in a cash strapped situation,” Murali Ramachandran, CEO of Çelebi Aviation Services, a firm handling ground operations for some of the major airports in India, told Quartz.
“With no clear visibility of how things could evolve going forward, we remain challenged in terms of keeping ourselves viable and prepared for an uncertain future.”
The Indian aviation industry is estimated to suffer a revenue decline of $11.6 billion in 2020, as per the International Air Transport Association (IATA). The sector will see a 49% decline in passengers flown during 2020 as compared to a year ago, which will force over 3 million job losses, the trade body estimated in a report published on July 13.
The low business momentum has forced companies that depend on airlines to rethink their operations. “We have undertaken necessary efficiency measures and optimised all cost drivers in line with the financial distress we are in,” said Balu Ramachandran, global head of Cleartrip, a flight and hotel booking portal. “Some of these measures have affected our employees as well.”
Besides slow business, here are some of the other issues facing companies that operate in aviation-allied sectors in India, according to Nishant Pitti, CEO and co-founder of online travel firm EaseMyTrip:
Low cash reserve: At a time when ticket cancellations are at a record high, some airlines in India have not been refunding money on cancelled tickets to travel agents. Instead, they are adding virtual balance to their “credit shells” or online wallets, which can be used for future bookings. This has led to cash flow issues for several travel agents.
Frequent change in government’s policies: Ticketing portals and travel agents are also struggling to keep pace with policies of several state governments. With the number of Covid-19 cases still on the rise in India, there are frequent changes to where airlines are allowed to fly and where the airports are shut. Providing customers with the right information at all times has become a challenge.
Bracing for the new normal: There will be a substantial change in people’s habits, preferences and desires for their travel. While battling the current situation, companies also need to redefine their products and services to align them with customer requirements.
In March, passenger air travel came to a screeching halt after the Narendra Modi government announced a nation-wide lockdown. Even though cargo flying was allowed during most parts of the lockdown, there was a decline in the quantities that are transported. Now, even as cargo volumes are rising, it is not enough for businesses to survive in the long-run.
“The cargo volumes had dropped to as low as 15% of last year’s levels. The volume has picked up and has reached 60% (of last year’s) levels, primarily coming through non-scheduled freighters and charters. Unfortunately, this situation is not sustainable until the international passenger flights re-start. And, that will take time,” said Ramachandran of Celebi Aviation.
In addition, the lockdown period came with its own challenges for airports in India as they struggle with the various rising costs due to the suspension of flights.
Owing to the weak operating conditions of the airports, in June, credit agency Moody’s downgraded its ratings for the international airports in Delhi and Hyderabad. “The spread of the coronavirus pandemic, the weakened global economic outlook, low oil prices, and asset price declines are creating a severe and extensive credit shock across many sectors, regions, and markets,” Moody’s said.
In the coming months, airports and concessionaires in India are expected to report losses between $1.50 billion and $1.75 billion, as per Sydney-based aviation think tank Centre for Asia Pacific Aviation (CAPA).
It is widely believed that recovery of the aviation sector is at least two years away and to survive in the meantime, allied sectors are pinning their hopes on relief measures from the Modi government.
“We don’t anticipate things getting back to pure 2019 levels any time before 2022 end,” said Celebi Aviation’s Ramachandran. “We are continuously engaging with the government and our airport operators to try and get meaningful fiscal support. We need to survive today to be healthy and viable tomorrow.”
Notably, as of now, despite the continuous request from various industry players, the government has not announced any cash or tax incentive for the aviation sector.