COVID-19 Impact: Some domestic airlines are facing existential crisis: ICRA

Many airlines have already started undertaking salary cuts for their employees, including leave without pay and laying off pilots and crew members to cut costs.

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Some domestic airlines, that were already facing financial stress, are staring at an existential crisis in the wake of the coronavirus pandemic, a report said.

Indian carriers are expected to incur combined losses of Rs 5,100-6,100 crore in the period between March 25 and May 31, with their per-day lose averaging around Rs 75-90 crore, rating agency ICRANSE 0.77 per cent said as commercial flight services remain suspended since March 25.

“While some airlines have sufficient liquidity and/ or financial support from a strong parentage, which will help them sustain over the near term, some airlines, which were already in financial stress, are facing (an) existential crisis,” Icra said.

Many airlines have already started undertaking salary cuts for their employees, including leave without pay and laying off pilots and crew members to cut costs. However, until the cash inflows resume, the airlines would require funding support to meet their expenses, it said in a report.

GoAir has sent its staff, including pilots, on leave without pay till May 31. AirAsia India has cut its employees’ April salary by up to 20 per cent. Vistara too has announced reduced salaries for its employees for May and June. SpiceJet has also taken various cost-cutting initiatives.

“Considering the operating expenses of the Indian aviation industry in FY2019, and that about 35-42 per cent of their expenses are fixed in nature, it is estimated that the industry is reporting a net loss of Rs 75-90 crore per day of shutdown of operations — Rs 51-61 billion (Rs 5,100 crore-Rs 6,100 crore) of loss over the period (from) March 25 till May 31,” Icra said.

As the operations of the airlines have been shut from March 25, till at least May 17, there is a complete loss of revenues.

However, Icra said some of the airlines are operating cargo flights on a commercial basis that are a source of revenues as well as profits during this period of shutdown.

According to the report, till May 3, a total of 883 commercial cargo flights have been operated by SpiceJet (775 flights), IndiGo (88) and Vistara (20).

While the airlines started advance bookings for the post lockdown period, resulting in immediate cash inflows, there have been notifications by the DGCA to refrain from booking tickets until further notice, Icra Vice President Kinjal Shah said.

Further, DGCA has issued advisories asking the airlines to provide full refund on cancellation of those tickets which were booked during the first lockdown period (March 25 to April 14) for travel either in the first lockdown period or the second period (April 15-May 3) for both domestic and international travel without levying cancellation charges, she said.

“This is thus resulting in return of advances received by the airlines. For all other domestic and international bookings which have to be cancelled due to COVID-19, the airlines are offering a credit shell with a validity of one year.

“Thus, even when the operations resume and passengers start flying, a large percentage of passengers may be using these credit shells, and thus may not bring any significant additional cash inflows to the airlines,” she noted.

Icra said it expects domestic passenger traffic to witness a de-growth of around 41-46 per cent in FY21 with the first half of the fiscal likely to witness a sharper de-growth followed by some recovery in the second half of FY21, as the airlines resume operations in a phased manner.

In FY21, international passenger growth for Indian carriers is expected to see a de-growth of about 67-72 per cent.

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