With global travel restrictions, grounded fleets, benched staff, uncertainties in travel schedule, ticket liabilities, and cash burn, the global aviation industry, never had it so bad, and that too, for two consecutive years. And it’s not limited to travel restrictions. Airlines not allowed to fly to certain destinations, visas not being issued, inbound lockdowns and a ban on Indian travellers by different countries have all led to a chaotic situation. It has also spiraled into severe demand contraction because of job losses and reduced income and a fear psychosis, which might continue to linger even after the pandemic has subsided.
Indian aviation industry too has not been spared its devastating impact Indian airlines alone will incur a loss of $4.1 billion loss in the current fiscal (2021-22), with another $3.9 billion losses reported in the last fiscal, according to a June 3, 2021, report by aviation consultancy and research firm, Centre for Asia-Pacific Aviation (CAPA). Similarly, rating agency ICRA estimates that airports are expected to witness a decline in operating income by 6.1% to Rs 8,400 crore, while reporting an operating loss of nearly Rs 1,700 crore and a net loss of Rs 5,400 crore (64%) in FY 2021. “The overall cash loss for the sector is estimated at around Rs 3,500 crore in FY2021, impacted by a 66% year-on-year slip in passenger traffic amid Covid-induced travel restrictions,” says the report.
No wonder then, the Association of Private Airport Operators (APAO) is seeking a bail-out package from the government because it believes that airports are not generating enough cash to sustain operations and meet their debt obligations. With dwindling cash flows and downgraded credit ratings, airports may find it impossible to make further investments.
Unfortunately, as the airline sector was about to pick up pace with inbound and outbound passengers returning from September to January of FY 21, the deadly virus struck again. The re-imposition of formal lockdowns from March 2021, as well as passenger apprehensions, saw traffic numbers halve in a matter of a couple of weeks, with all likelihood of subdued demand continuing for several months. Additionally, the Centre extended the ban on international commercial flights till June 30, 2021, to end on 31 May after a 14-month gap, killing any hopes of a V-shaped recovery.
While airlines have been forced to ground airplanes in the absence of passengers, airport operators too had to close down a few terminals. Yet, they had to continue operations to facilitate repatriation and cargo flights. Delhi saw the closing down of two terminals—terminal 1 and terminal 2—out of a total of three by GMR Group. More worrisome is the impact on smaller airports, which neither have the financial muscle to ride out their losses, nor the bandwidth to prepare for a new post-Covid world.
The demand for greater sanitation facilities and social distancing will force airports to make arrangements for new queues, biometric recognition of passengers, and gathering spaces to ensure contactless travel. Such measures will not only hike costs of running the airport, increase turnaround time but also reduce peak hour processing capacity of terminals. Moreover, with airports losing take-off and landing fees and therefore registering reduced footfalls, airport retailors too are reporting less sales and calling for a moratorium/ delay on their rents or stopping payments.
Airport operators will not only have to postpone their capital investments and reduce operational costs, but also find ways to reduce discretionary spending, stop non-critical recruitment and work with suppliers to cut costs. It simply means that they will have to re-think their organisational strategy like increasing non-aeronautical revenues to ride out the current storm.
The authors, Ashish Gupta and Ashwini Phadnis, are Senior Research Fellows, CRIDP, Hyderabad. Views are personal)