Coronavirus (COVID-19): THE EXTENSION of lockdown till May 3 has also rippled on to the civil aviation sector, but airlines have started planning for gradual resumption of operations from May 4. India’s largest airline IndiGo said Tuesday that it will resume flight operations May 4 onwards, initially with a curtailed capacity. The airline said it will increase the operating capacity going ahead over the subsequent months, also re-opening some international flights.
However, plans to gradually restart operations remain contingent on the government clearing the way for economic activity to resume. Shortly after Prime Minister Narendra Modi’s announcement on Tuesday extending the lockdown, the Civil Aviation Ministry also notified continuation of the ban on scheduled commercial flights till May 3.
Aviation is pegged to be one of the main sectors to have severely felt the heat of the COVID-19 outbreak, with questions being raised over the very survival of certain airlines. “Airline business is a very high fixed cost business with major expenses including fuel costs (~30-35% of total costs), lease charges (~30-35% of total costs) and O&M (operations and maintenance) costs (~15-20% of total costs) constituting more than 85-90% of the total costs,” CARE Ratings noted in a research report published Tuesday.
“Though airlines are not bearing fuel costs given the lockdown scenario, costs related to fuel (ATF), lease rentals (usually payable monthly) and O&M which are largely fixed in nature need to be borne by all the players (lease rentals are fixed in nature whether availed under operating or financing lease arrangement, while minimum O&M activities need to be done in all the grounded planes as per DGCA guidelines),” the report said.
“Also, all such operating expenses (lease rentals, O&M expenses) are paid in foreign currency (USD, EUR etc) and are largely unhedged, exposing all airline operators to volatility in forex rates (in last 1 year, INR has depreciated by around 10% against USD) which can have a strong bearing on profitability,” it added.
Globally, too, the situation continues to be precarious for airlines. “The industry’s outlook grows darker by the day. The scale of the crisis makes a sharp V-shaped recovery unlikely. Realistically, it will be a U-shaped recovery with domestic travel coming back faster than the international market. We could see more than half of passenger revenues disappear. That would be a $314 billion hit,” said Alexandre de Juniac, director general and CEO of International Air Transport Association (IATA).
“Several governments have stepped up with new or expanded financial relief measures, but the situation remains critical. Airlines could burn through $61 billion of cash reserves in the second quarter alone. That puts at risk 25 million jobs dependent on aviation. And without urgent relief, many airlines will not survive to lead the economic recovery,” de Juniac added.
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