Indian Airline Industry on the Road to Recovery

One of the segments of the national economy that has suffered most from a debilitating impact of the COVID-19 Pandemic in the year 2020, has been the Indian civil aviation industry. This indeed was somewhat tragic as India has been among the fastest growing civil aviation markets in the world. The adverse effect on the financial position of companies in the civil aviation sector on account of the COVID-19 Pandemic, was further aggravated by the fact that this devastating phenomenon came close on the heels of the global economic slowdown.

The COVID-19 Pandemic has been particularly disastrous for the Indian airline industry as the total lockdown for three weeks imposed with effect from March 23, 2020 that turned out to be rather prolonged, was a serious setback as it totally paralysed the Indian airline industry. Barring a few airliners that were employed by the government from May 2020 onwards for special international passenger flights under the Vande Bharat Mission for repatriation of Indian citizens who were stranded abroad. Some of the airliners were used for airlifting cargo consisting of urgently required medical supplies to destinations within India. This was necessary as all airliners were grounded as both domestic and international flights were banned. This came as a major financial trauma especially for the private carriers that had already been operating in a very highly competitive market and had very narrow profit margins with strained balance sheets. These private carriers had no option but to lay off their employees or send them on leave without pay. In cases where there were no layoffs, drastic cuts were imposed by the airlines on the salaries and perks of the employees. Since the emergence of the private carriers on the scene in the wake of liberalisation of the airline industry in the early 1990s, the COVID-19 Pandemic has perhaps been the most traumatic experience faced by this segment of the Indian airline industry.

With the lifting of the lockdown, the Indian airline industry began to limp back to normalcy. The government entered into agreement with as many as 24 countries under what was described as “Air Bubble” arrangement to operate special flights. Scheduled international flights from and to India however, remained suspended. As per the Centre for Asia Pacific Aviation (CAPA), “The revival of overseas travel is expected to be slower and more challenging than domestic. This will hurt Air India in particular as around 60 per cent of its revenue is generated from international operations.” As per CAPA, as against 140 domestic and 65 million international passengers carried in financial year 2019-20 in India, in the current financial year, the estimate is that India will see only 50 million domestic and 10 million international passengers.

While other sectors of the national economy may be able to gradually recover from the setback, the Indian civil aviation industry and particularly the Indian airline industry had been confronted with a situation where in the vey survivability especially of the private carriers was in serious jeopardy. The private carriers in severe economic distress would need substantial financial assistance from the government for them to survive. For the government too, the situation created a serious dilemma as it has already been burdened with Air India which its major financial liability which only worsened on account of the COVID-19 Pandemic. Even the effort by the government to sell off stake in the national carrier, continued to remain in the doldrums during the period of the COVID-19 Pandemic.

Around two months after the imposition of total lockdown for three weeks commencing March 23, 2020, domestic flights albeit with much reduced frequency, were permitted to operate. International flights however, continued to remain banned. Despite lifting of ban on domestic flights, demand for air travel in the domestic sector continued to be very weak. Data on domestic travel for September last year indicated that there was a drop in civil passenger air traffic by as much as 66 per cent. The Bengaluru-based Investment Information and Credit Rating Agency (ICRA), in a report has stated that as a result of the travel restrictions and consequent adverse impact on passenger traffic due to the COVID-19 Pandemic, the Indian carriers will post net loss of about 21,000 crore during the financial year 2020-21.

According to the Ministry of Civil Aviation, the domestic segment of the Indian airline industry is expected to return to normal in the next two to three months. On January 10, 2021, with 2.73 lakh passengers flying on that day, traffic reached a new high. After a depressing period of ten months, the tide has finally begun to turn for the Indian airline industry.