Coronavirus | Opeds and editorials

Will the aviation industry recover from the pandemic?

The aviation industry, like several other sectors, is facing a crisis in the wake of the COVID-19 pandemic. With travel restrictions, grounded fleets, benched staff, schedule uncertainties, ticket liabilities and cash burn, questions are being raised on whether the civil aviation sector can survive the epidemic. Aviation experts Mohan Ranganathan (a retired airline instructor pilot, an aviation industry watcher and an aviation safety expert) and Jitender Bhargava (a former airline executive director, an aviation industry expert and consultant) weigh in on the steps needed for a recovery, in a conversation moderated by Murali N. Krishnaswamy. Edited excerpts:

The International Air Transport Association (IATA)’s Director General and CEO has said that the association, which represents some 290 airlines, or about 82% of global air traffic, is working on a scenario of severe travel restrictions lasting a few months. This could cut industry revenues by a projected $252 billion in 2020. In terms of the bottom line, this is expected to translate into a $39 billion net loss in the second quarter. The industry will also burn about $61 billion in money in the second quarter. This is a dimension beyond anything that the industry has experienced.

Mohan Ranganathan: Even though IATA has projected this only for one year, I would go more by what Singapore Airlines had announced, like when they announced the grounding of 96% of their fleet. You have Changi Airport shutting down one complete terminal for a year, where they have said they don’t expect traffic to grow for a year. And it may extend to the end of the second year. For us in India, it is going to definitely take more than a month even to start. And then it is going to take at least a couple of years to come back to at least 50% of what we were. And that depends on how many airlines survive.

Jitender Bhargava: The crisis confronting the aviation industry is not only unprecedented but also that no one who is working in the industry has any clue on how to put the industry back on track. If you recall the previous instance of 9/11 and what happened subsequent to that, it took a lot of time for the aviation industry to come back. Captain Ranganathan is very right about the time to recover. It’s not a question of only restrictions, visas not being allowed, travel not being allowed, airlines not being allowed. Even after all these are allowed, there will be apprehension. The first is the economic aspect. Will people travel, either for leisure or on business? The answer is clearly no. It will take a long time for this to happen. Then the question is of people going out to destinations and being apprehensive. So, the first casualty will be the airline industry. How many flights will you operate? The fact is that a plane on the ground costs the airline enormously. In India, for example, out of the 650 planes you have with all the airlines, 50% of them have been taken on lease. So even while they’re on the ground the lease rentals are being paid. It is not only employees who are being unproductive but also the machines. So both men and machines are taking a heavy toll on the aviation industry. Now when you look at just the revenue loss, which was mentioned in the introductory comments, this was on a certain presumption that the grounding of the fleet or airline would last only a maximum of three months. If it lasts much longer, the revenue loss will be higher and, subsequently, the losses will be higher. In the meantime, if certain airlines are not able to sustain their operations, there will be a question mark on the airline’s future. There is also another IATA statement which projects 25 million people losing their jobs. Imagine a scenario when you have a large chunk of airline employees losing jobs, including pilots, who are otherwise difficult to get. So the future is bleak. It is very difficult for anyone to visualise how the situation will unfold.

A point mentioned is on aviation’s recovery being linked to the willingness to travel. So how can governments and airlines facilitate this process to be smooth?

Jitender Bhargava: If you’ve been reading the newspapers and the recent statements of the DGCA [Directorate General of Civil Aviation], even when the flights are put back into operation, the concept of social distancing will be imposed on the airlines. If you are only going to be flying one-third of your capacity, look at the kind of fares that an airline will have to charge to sustain its operations. And as we have seen, India is a price-sensitive market. We are perhaps getting back to the era of the 1940s and the 1950s where only the elite could afford to travel. So, it’s a difficult situation. But let me also make one significant point. Indian industry is in a unique position. Also, most of the airlines that came up 10-15 years ago have only seen the good times. Otherwise, we’ve always seen that in the aviation industry, it’s a cyclical thing. You have a boom period followed by a trough period. So, they have placed orders for a large number of planes. They haven’t built cash reserves, barring Indigo. Once you are chasing market share at the cost of profitability, how are they, airlines, going to sustain it? It is basically a very scary scenario.


Mohan Ranganathan: Apart from what Mr. Bhargava said, now what the government forgets is that apart from the fares, which will have to be phenomenal, the days of family travel are finished in India. I am talking about domestic travel. If you're going to be charging ₹10,000 to ₹20,000, you can forget about any holiday for a family. Rail travel is what is going to gain. The second thing is that there are a lot of other areas which are connected with aviation. Most of them are going to become bankrupt. Can the government pump in money to push up an elite industry at the cost of others? It will result in a political boomerang. And the first thing that Indian aviation has to give up is ego. In a time like this, you need professionals with a clear mind, not bureaucrats who know nothing about aviation.

The U.S.’s $2-trillion package has provision for a few billions for airlines and staff. Australia, China and Singapore have undertaken specific relief measures. Aviation research agency CAPA predicts that airlines will need three stages of relief. How would you relate this to an Indian context?

Jitender Bhargava: The question that begs an answer is: can the government of India with its limited finances only concentrate on the revival of the aviation industry at the expense of other sectors? It cannot do so. They may come forward and give some kind of financial aid. But to expect large-scale aid to put the airline industry back on track is an impossibility. Certain countries may do it because they may have plenty of money. CAPA has also said that 250 aircraft will be surplus to our needs. My estimate is that we will not need even 50% of the 650 planes that all our airlines currently have.

Mohan Ranganathan: If the government wants to pump in, they have to nationalise all the airlines, and they will just be committing hara-kiri if they do that. Also, look at the UDAN airlines. They are not sustainable. They are subsidising them and none of them is making money. So how many ventures are you going to support?

Business models are sure to have to undergo a radical change. How would you see this affecting established carriers? What about the low-cost carriers?

Jitender Bhargava: The business model that our Indian carriers followed is this: garner market share at the expense of profitability, which in other words was no business model at all. They were looking at today, not looking at tomorrow. You rightly said there is a low-cost airline and there is a high-cost airline, the legacy carriers. Now the unfortunate part is that in India, there is really no low-cost airline. The fact remains as long as the airlines are driven by promoters and by their personal egos, you will not have a good chapter for the aviation industry. Perhaps the first thing the government can do is to put the Aviation Turbine Fuel, or ATF, in GST. My suggestion is to let the government have a hands-off policy on the aviation industry. Let the aviation industry learn the lessons and they will come out much better after this pandemic is over.


Mohan Ranganathan: We have to rebuild aviation. The only way we can do it is to move slowly, understand where the flights are essential and move away from fixing the schedules based on a Delhi-centric focus and politicians. You must understand that it is the public which makes the airline and not the freeloaders.

As far as manufacturers are concerned, that is another major area in this whole pandemic story. So, what happens to manufacturer programmes?

Mohan Ranganathan: Post-pandemic, you are going to have more use of the 350 and the 787 categories. Manufacturers are going to face a big problem for the next 10 years. I am not talking about one or two years. It’s 10 years because for finances to build up, for airlines to place the orders… the industry is not going to start reviving before five years.

You will not be going to have business travel. You are going to have more and more people online because they don’t want to get stuck somewhere. Airlines, if they want to fill up aircraft will have to sell cheap tickets which will see them going deeper in the red. It’s a Catch-22 situation. So as far as manufacturers are concerned, you can forget about trying to sell a craft for the next five years.


And the final picture?

Jitender Bhargava: One can only wish that airlines come out of the current situation faster and without much damage, but that will be wishful thinking. The realistic picture is dismal. We know about it. We also know it will take a very, very long time for the industry to get back the traffic. Another thing that has come out is that in this lockdown condition, a lot of people have found alternative means of working, especially with video-conferencing. So it’s going to be a major change that we will see not only for the aviation industry, but for the way we’ve looked at the world and the way we have worked so far.

Mohan Ranganathan: My advice, as my English professor said, is ‘hasten slowly’. I don’t think that at a drop of a hat we can get back to the pre-pandemic situation. Right now,we are in quicksand. So, it requires clear thinking, you need professionals. And the most important thing is that if you have made an error, admit that you’ve made an error and learn from it. Whether it is aviation, or all travel-related, tourism-related industries, it is going to be in a shambles for the next two years. So they have to plan on how to mitigate the suffering. And pull out of the rut two years from now. If you think that you’re going to be back to normal in six months, you’re making a mistake again. They have to move very, very slowly to try and revive the industry.

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Printable version | Jun 16, 2021 8:34:04 AM |

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