The impact of Coronavirus pandemic on Indian Aviation Sector and the threat of Omicron.

In 2020, the COVID-19 epidemic significantly influenced the Indian aviation industry. Major airlines that were experiencing difficulties and difficult times laid-off personnel or reduced their salaries. The government had to extend the deadline for making bids for Air India five times.

As the virus swept across the country, all scheduled international and domestic passenger flights were cancelled on March 23, 2021, and March 25, 2021, respectively. Domestic flights were resumed in a limited capacity on May 25. The loss data of India's two leading airlines can be used to estimate the impact of this disruption. IndiGo lost ?2,884 crores and ?1,194 crores in the first and second quarters of FY21, respectively. SpiceJet lost ?600 crores in the first quarter of FY21 and ?112 crores in the second quarter of FY21.

Meanwhile, the government had allowed special international passenger flights under the Vande Bharat Mission, and air bubble agreements with roughly 24 nations were created from July 2020. In India, however, scheduled foreign flights were still suspended.

The resurgence of international travel was projected to be slower and more complicated than domestic travel. This harmed Air India, mainly since global operations formerly accounted for about 60% of its revenue. In 2020-21, just 50-60 million people were expected to travel, with 40-50 million domestic and less than 10 million foreign. Approximately 205 million aviation passengers went through India in 2019-20, with 140 million domestic and 65 million international passengers.

In October 2020, CAPA (Centre for Asia Pacific Aviation) India predicted that the Indian aviation industry would lose USD 6-6.5 billion in FY21, with airlines accounting for USD 4-4.5 billion. As a result, the government's intention to sell Air India was postponed. After failing to sell the national carrier in 2018, the government began the privatization in January 2020. Despite this, the epidemic compelled them to five times extend the deadline for submitting an expression of interest (EOI). The deadline for submitting an EOI was December 14, 2020. TATA was the one who bought Air India out of a slew of EOIs received by the government.

As of March 31, 2019, Air India owed ?58,255 crores. While Air India was unable to find a private owner in 2020, Jet Airways, an insolvent airline, could do so. On October 17, 2020, a group led by UAE-based businessman Murari Lal Jalan and London's Kalrock Capital won the bid to restart Jet Airways. The airline was supposed to begin operations in the summer of 2021. However, that deadline has been pushed back to 2022. The consortium said it is seeking NCLT and other regulatory clearances, including the civil aviation ministry's and Directorate General of Civil Aviation's reinstatement of slots and bilateral traffic rights (DGCA).

Meanwhile, work on Delhi's second international airport began in 2020. Zurich Airport International signed an agreement with the Uttar Pradesh government on October 7, 2020, ten months after winning the proposal for a greenfield international airport in Jewar. The passenger terminal will be designed by a four-company partnership chosen by the Swiss developer. By 2024, the first phase of airport building should be completed. In India, air freight traffic is recovering faster than passenger traffic in 2020. The aviation industry has benefited from this.

"Total cargo volumes are likely to drop by 17-20 percent in FY2021," said Anupama Arora, Vice President and Sector Head, ICRA Ratings, "with considerable recovery in cargo volumes expected only in FY2022."

To escape the pandemic-induced crisis in 2020, all airlines used cost-cutting measures such as layoffs or wage reduction. GoAir put most of its employees on unpaid leave in April. In April, Air India announced a 10% pay decrease for its staff.

SpiceJet and IndiGo, on the other hand, reduced all employee compensation by 10-30 percent and 5-25 percent, respectively. IndiGo would also lay off 10% of its workers in July 2020. In April, AirAsia India slashed the salary of its senior staff by up to 20%. Vistara introduced a leave without pay policy for its employees based on seniority beginning April 2020.

Threat of Omicron

The Omicron variant, a novel and highly infectious coronavirus strain emerged from South Africa. According to research by Edelweiss Securities, this coronavirus strain has delayed the restart of international flight operations. Still, it may also derail the recovery of the domestic sector, putting smaller airline companies at a greater risk. Indian airlines will continue to struggle financially as passenger traffic returns to pre-Covid levels. According to another assessment by rating agency ICRA, it is projected to remain slow due to persistent restrictions on international travel and reduced demand from corporate travel.

Only 70% of domestic passenger demand will revive.

Domestic passenger demand will only rebound by 70% in FY22, according to Edelweiss, citing aviation research and advisory firm CAPA India. It will only recover to pre-Covid levels by the second part of 2022. International travel fell by 70% in FY21 due to the travel ban and will continue to fall by 70% in FY22 (compared to FY20), with normalcy unlikely until FY24.

According to the analysis, the Indian aviation industry will lose $3.6-3.8 billion in 2021-22. (Apr-Mar). Even the rating agency ICRA noted that aviation's recovery is unstable. The business traveller segment shows symptoms of slowing down, with a 19 percent reduction in November 2021 compared to pre-covid levels.

"The threat of Omicron, which has pushed [back] the resumption of scheduled international operations, has the potential to derail the domestic recovery as well, if it becomes a source of a fresh round of lockdowns/restrictions in the near term," said Suprio Banerjee, ICRA's vice president, and sector head.

According to ICRA, Indian airlines' performance is projected to remain sluggish. A slow recovery in passenger traffic to pre-Covid levels is expected, owing to prolonged overseas travel restrictions and weak demand from the corporate traveller group. Despite the improved rate of vaccination and sequential recovery in demand for air travel (led mainly by the leisure segment), domestic passenger traffic is still down 19 percent from pre-Covid levels, at 104-10 5 lakhs in November 2021. Furthermore, poor aircraft fleet utilization combined with a 67.3 percent YoY increase in ATF prices will continue to impact Indian carriers' financial performance in FY2022.

"The demand recovery would be postponed for FY2022 because of the arrival of Covid-19 2.0. As a result, the industry's debt levels are projected to remain high, with estimates of Rs 1200 billion (including lease liabilities) for FY2022 and the sector requiring extra finance support of Rs 450-470 billion from FY2022 to FY2024 "ICRA made a point.

Omicron harms passengers' trust in travel.

Domestic passenger traffic increased by 17% month over month to 10.5 million in November 2021, while preliminary passenger traffic for December 2021 shows a 5% increase month over month to 11.1 million. On the other hand, passenger traffic is down 15% from pre-Covid levels, yet ATF prices are still high, up 50% year over year. Airline companies will have a difficult time dealing with the new covid strain, which will result in more cases and restrictions.

The World Health Organization has already issued a warning that the variant is spreading "much quicker" than the delta strain and may alter the pandemic's trajectory. Omicron has been found in at least 89 countries, prompting some governments to enact more stringent containment measures during the holiday season. The Director General of Civil Aviation (DGCA) declared on November 26 that scheduled international flights would resume on December 15 with a few restrictions. However, due to the proliferation of the Omicron variety, the regulator had to postpone it until further notice.

The lifting of fare caps will be difficult for airlines.

The Ministry of Civil Aviation established a tariff band to keep excessive fares in check, which airlines are expected to follow. On the other hand, the MoCA permitted a 10% -30% hike in fare ceilings on February 12, 2021. While MoCA gave the shortest route a 10% increase, the longer routes were granted a 30% increase. After that, MoCA extended the limits until May 31, 2021.

Furthermore, on May 28, 2021, the MoCA approved a 13-15 percent rise in the lower air-fare band, effective June 1, 2021, while maintaining the full restrictions. On a 30-day rolling basis, the band was expanded by 10-13 percent on both the minimum and maximum bands, lasting from August 12, 2021. This rise allowed airlines to recuperate a portion of the ATF pricing increases. However, as of September 18, 2021, the Ministry has reduced the fare cap rule, allowing tariff caps in each band to be applied for the following 15 days on a rolling basis, rather than the previous 30 days as stated in the last circular.

CAPA India predicts that the fare cap restriction will be repealed in the January-March quarter but cautions that doing so will be more difficult for airlines because it will result in a loss in yield or average revenue per passenger per kilometre. According to the report, fare caps are now used by airlines as a buffer against more significant losses. Indigo/SpiceJet are expected to lose ?7100 crores and ?2500 crore, respectively, in FY22, according to CAPA India. SpiceJet will need at least $400 million in funding, GoAir wants to raise $450 million through an IPO by the end of FY22, and Indigo will need a qualified institutional placement by FY23, according to the report. In the second half of 2021-22, the industry will demand $1 billion in total (Apr-Mar).

Costs will continue to grow.

Even though airlines have made various initiatives to reduce fixed and variable costs, CAPA predicts that prices will continue to rise: Charges at the airport are set to rise.

Here's why:

1. Airlines might raise staff salaries and expenses to pre-covid levels.

2. With new capacity coming online, overall non-fuel costs are projected to climb.

3. The acquisition of Air India by TATA and the entry of two new competitors would result in a battle for talent at all levels, with Indigo likely to bear its brunt. A shortage of 50-70 senior/upper-middle managers has been identified across the industry, and carriers may find it challenging to re-hire the workforce.

According to CAPA India, the aviation industry needs $5 billion in capital to stay afloat.?

The rise of cases from Omicron Variant.

On 23rd December, the United Kingdom set a new record for the number of new coronavirus cases for the second day in a row. After identifying over 1.06 lakh instances the day before, it recorded more than 1.19 lakh cases in 24 hours.

On the same day, Spain saw its largest single-day tally of new cases, with more than 50,000 illnesses reported. The daily count of patients in France has already surpassed 70,000, and the country's health minister has warned that it would shortly exceed 1 lakh. Whereas India has reported 415 cases of Omicron as of 25th December 2021.

With a booster dose coming in and the vaccination drive still progressing, the airlines might be able to get back to their full potential.