To Avoid A Major Crash, Our Airlines Need A Helping Hand

The Coronavirus pandemic that first emerged in December 2019 in the city of Wuhan, China, has spread to 219 countries, areas or territories, infected 454,28,731 and killed 11,85,721 people as of October 31, 2020, according to the World Health Organization (WHO). And with no confirmed antidote so far, it continues to spread, with some regions already experiencing a second wave.

The pandemic has hit consumer demand, ravaged production lines, played havoc with transportation and logistics, and practically put a brake on the basic drivers of the economy. Countries like India have been badly hit, the with GDP plummeting to below 23 per cent.

One of the worst-hit sectors is the aviation industry. The International Air Transport Association (IATA), a trade association and representative of the airline industry, estimates that global revenues generated by the airline sector are likely to be reduced by half from US$ 838 billion in 2019 to US$ 419 billion in 2020.

Global GDP Growth versus Airlines Passenger Traffic Growth (2008-2021)

Source: World Bank, IMF, IATA

Major airlines are staring at bankruptcy or looking toward the government support to survive. Some may have to ultimately close down. The most recent examples of airlines that filed for bankruptcy or ceased to exist include the UK low-cost carrier Flybe (March 2020), Virgin Australia (April 2020), Chile’s LATAM (May 2020), Colombia’s national airline Avianca (May 2020), the German airlines SunExpress Deutschland (June 2020), and the Austrian airline LEVEL Europe (June 2020). The severe financial crunch due to the Covid-19 pandemic has proved to be the death knell for them. The prolonged suspension of operations due to Covid-19 outbreak has brought the aviation sector to the brink of a complete collapse. IATA estimates that globally, airline sector may need a bailout package worth US$ 200 billion to sail through the crisis.

Governments across the world are infusing massive amounts of capital resources to provide relief to the major sectors of the economy to mitigate the effects of the pandemic.

Table 1: Global Bailout Packages for Aviation Sector

Governments in countries like US, Germany, France and Singapore have come forward with financial packages worth around US$ 160 billion to provide relief to the airline industry. Among the BRICS nations, Brazil has announced a comprehensive relief package for its airlines fighting for survival. These include deferring payments, reduction in taxes, and extending a credit line of US$ 1.8 billion. The Chinese government has announced cash support to its airlines that operate international flights.

Globally, the airline industry has witnessed around 400,000 job losses. With airlines grounded and pandemic not abating in near future, resorting to layoffs seems to be the dominant strategy. The US government’s wage support scheme to the airlines sector ended in September 2020, with no signs of any other deal. In Europe too the situation is no better. However, airlines in the Asia Pacific region appear to be hardest hit. According to IATA, they are expected to report losses of around US$ 29 billion in 2020. Layoffs in the region have already crossed the 100,000 mark.

Table 2: Layoffs by Major Airlines

In India, the aviation industry has witnessed decadal growth amidst some turbulence. It has witnessed setbacks in the form of bankruptcies of carriers like Kingfisher and Jet Airways. But the improvement in airport infrastructure has created huge opportunities for domestic airlines. This is evident from double-digit growth witnessed in revenues of domestic airlines in 7 out of the last 10 years. However, the Covid-19 pandemic let to 83% reduction in passenger traffic in July 2020, with just 2.1 million passengers compared to 11.9 million passengers during the corresponding period in 2019.

As the severity of the Covid-19 pandemic unfolded, the Indian government too resorted to lockdown. All modes of public transportation including airlines were brought to a grinding halt. The measures were aimed at restricting the movement of people to contain the spread of coronavirus and break the chain. Flight restrictions were enforced from March 25, 2020 during Lockdown 1.0; but flights, with strict guidelines, resumed from May 25 during Lockdown 4.0. Strict rules of quarantine put in place by various state governments, combined with threat perception being associated with air travel, has taken its toll on the financial health of the airline sector. Indian carriers too have been forced to resort to layoffs, salary freezing or pruning to stay afloat and manage thin cash reserves. Vistara is reported to have sent 1200 employees on mandatory leave without pay; Air India was forced to reduce the salary of its staff; Indigo, despite 60% market share, had to lay off 10% of its employees. Industry experts feel that if the Indian government doesn’t come up with direct financial aid to the airlines, the sector may witness unprecedented upheavals.

Despite expected financial losses of US$ 11 billion during 2020 (IATA), India’s airline sector has been contributing immensely to the national effort by operating special flights to help evacuate Indians in distress; flying essential workers to their destinations, and there have been minimal disruptions in freight services. Air India employees have shown great courage and dedication by continuing to safely bring back Indians stranded abroad, under the Central Government’s ambitious ‘Vande Bharat Mission’. The national flag carrier will go down in history for operating medical evacuation flights to and from Wuhan in China after the outbreak of coronavirus epidemic. Around 60 pilots and several support staff involved in these medically high-risk missions have tested Covid-19 positive.

The government of India extended a comprehensive financial relief package of roughly US$ 22 billion in March 2020 to various industries affected by the pandemic. However, the airline sector has been left out and would not be receiving any direct financial benefits even though the airline sector is in dire need of around US$ 2.5 billion to survive the deepening crises. Hence, IATA and Federation of Indian Chambers of Commerce and Industry (FICCI), have approached the government for immediate relief in the form of financial packages and reduction in taxes on aviation fuel. IATA has ominously predicted that the airline sector is likely to return to the pre-pandemic level only by the end of 2024! Thus, in the absence of compassionate, multi-pronged, hand-holding by the government, the Indian airline industry may suffer a fatal deathly crash.

(Views expressed are personal. Mohammed Naved Khan is Professor, Faculty of Management Studies & Research, Aligarh Muslim University, and Matloob Hasan is Director, Azoth Analytics, New Delhi)