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Ways in which Coronavirus has transformed the airline industry?

  • Posted Date: June 23, 2020

International flights likely to start by mid-June

Civil Aviation Minister Hardeep Singh Puri has stated on Saturday, 23rd May 2020 that in all likelihood, international flights will start by mid-June or end July. This will be the case if COVID-19 pandemic acts in the predicted way. Passenger will not be then required to wait till August or September for the resumption of international flights.

In an earlier statement, domestic flights were declared to restart from Monday, 25th May 2020 in a calibrated manner.

All passenger flights are not being planned to be restarted. Similarly, if a passenger shows the green status over the Arogya Setu app, he will not need to be quarantined, Mr. Puri stated.

Six states were opposed to the idea of not quarantining passengers and strongly rooted for the passengers to be quarantined. These states include Assam, Karnataka, and Kerala.

Karnataka, in a briefing made on 23rd May has stated that passengers who arrive from the six states that have the maximum number of infections will be put in seven-day quarantine. Exemptions, however, will be made for the elderly, terminally ill, children, and pregnant women.

Tamil Nadu, similarly, has expressed that they are not in favour of reopening air travel. The number of coronavirus cases in Chennai is increasing at an astounding rate, and the public transport in Chennai is non-functional as well. Correspondingly, passengers travelling by air will find it difficult to get to their destinations from Chennai airport.

As of current, the Chennai airport is closed, and so are all other airports in India, under coronavirus lockdown.

Mr. Puri has expressed on Thursday that there has been an unnecessary fuss over quarantine of domestic air travellers. According to the civil aviation ministry, the Aarogya Setu app is an excellent contact tracing device. A passenger who shows red over the Aarogya Setu app will not be permitted to enter the airport or board a plane.

Increasing Coronavirus cases make the resumption of domestic flights a tricky issue

The recent surge, over the past four days in coronavirus cases in India has been a worrying aspect. Over 25,000 cases have been recorded over the past four days, 19th to 22nd May. 6,654 among them have been reported on 22nd May.

Overall, Coronavirus cases in India stand at above 1.25 lakhs, with over 3,700 deaths reported.

Aviation stocks are soaring at this time

Domestic flights in India will resume in a calibrated manner starting 25th May, as per an announcement by the civil aviation ministry. This renders much sought after relief to the hard-pressed sector and has sent aviation stocks soaring.

The flights will resume after the aviation sector was grounded for nearly two months.

Following the aforementioned announcement by the civil aviation ministry, the effects over aviation stocks were immediate. SpiceJet and InterGlobe Aviation are two listed aviation companies. Their stocks rallied by 13% and 5% respectively following the announcement of Thursday, 21st May 2020. InterGlobe Aviation runs IndiGo Airlines. Sensex, the benchmark index similarly gained 0.77% to 31057.09 points.

Beyond the announcement, the civil aviation ministry has stated that all airports and airline companies are gearing up for the resumption of operations starting from the scheduled date, 25th May 2020. It was since 25th March 2020 that commercial flights had been suspended. This was a part of the nationwide lockdown, imposed to put a check over the spread of COVID-19. The only flights that were permitted to operate during the time were special flights and cargo flights. They included the flights for medical evacuation, and those to bring home the Indians stranded abroad.

The latest phase of the lockdown, lockdown-4 lasts till 31st May.

The relief rendered may be temporary, because even upon resuming operations, the aviation industry will not be able to stimulate passenger traffic at the desired levels. This is because the virus is currently not showing signs of reducing in the spread.

CARE Ratings, the credit rating agency has the opinion that passenger traffic will decline by 30% in the current fiscal year. The underlying reasons for the same include restrictions on travel. Beyond that, passengers will harbour apprehensions regarding flying.

If we consider the past two years, passenger traffic has grown by 13.7% and 0.7% for FY2018-19 and FY2019-20 respectively.

Aviation Industry has undergone a drastic transformation since the onset of Coronavirus

The contemporary developments in the aviation industry on a global scale have presented a range of new business opportunities for many people. China has now replaced the US as the top aviation market in the world. At this time, the US is making major cuts in the aviation market while the Chinese aviation market is recovering.

Either of the markets is among the top in the world and is characterized by the state of the art features such as outstanding service, a developed MRO industry, and high flight punctuality rates. Either of the markets makes tax incentives available for airline operators.

After the US and China, it is the Indian aviation industry, which is the third-largest aviation industry in the world. Nevertheless, the Indian aviation industry is sometimes associated with economic and policy issues, a problem not seen in the Chinese and the US aviation industries.

An important problem intriguing the Indian aviation industry is the shortage of skilled workforce. When expats are hired at higher wages, profit margins are lower.

Aviation turbine fuel is priced higher and is highly taxed as well. Since the market is price sensitive, this further reflects on profit margins.

Since the onset of coronavirus pandemic, airline operators have faced a blow over their cash reserves. Aircraft have been grounded while the staff has been benched.

This has resulted in the firing of well-paid expats, and salary cuts for employees. Job cuts are likely to appear on a wide scale, with a fewer number of passengers who will choose to fly over the time to come.

Industry experts now have the opinion that it will take at least six months to two years for the aviation industry to bounce back to normal. The aviation industry is in a state of crisis. Airline operators will require significant cash reserves, across the next to two quarters for surviving this crisis.

At this time, airlines focused on domestic operations are better placed to thrive, because international air travel is dependent on nations’ policies as well.

One of the factors that augur well for the airlines operating in South Asian countries is that COVID-19 cases over here are fewer, on a per capita basis. This will ensure that the airline operators will be in a position to bounce back quicker.

From a global perspective, if patient screenings are made compulsory, it will be a significant setback for the industry. But it would help resolve passenger fears as well. Expenditures involved with the coronavirus pandemic will result in the innovation across the sector being limited.

Similarly, as the Indian government has announced caps on airfares, airlines’ profits will take a further beating.

At this time, the Indian aviation industry is in a dire need for reforms. This will make it easier for low-cost carriers to keep operational. These reforms may come in the format of PPP models for tier-2 and tier-3 cities, development of the MRO industry, and tax relief to airline operators.

A cloud of uncertainty currently prevails over the aviation industry

On Friday, 1st of May, 2020, Warren Buffet made a detrimental announcement for the airline industry, which is already in a bad shape. He announced that Berkshire Hathaway had sold all of their holdings in airlines.

This development lays repercussions not just over the airline industry, but over the oil industry as well.

Coronavirus has transformed each aspect of our lives

The airline industry has been deeply impacted by the coronavirus, with most of the countries imposing severe restrictions over international and local air travel.

Numerous industry experts have the opinion that the changes are going to impact our lives for a long time to come. They are not temporary and short-lived. While the effects of coronavirus will tone down over time, they will definitely be there.

Oil demand is seen across several industries. But it is at the highest levels in the aviation and airline industries.

Since the aviation industry will be affected over the long term, so will the oil industry.

Changes in the offing for the airline industry

The airline industry will take a long time to get to the position where it used to be before the breakout of the coronavirus pandemic. Two or three years down the line, people may not be flying as many passenger miles as they did earlier.

Warren Buffet is known as the Oracle of Omaha. When even Buffet is unsure of what the future has in store for the airline industry, it is difficult for anyone to know.

Investing in the airline industry becomes even trickier under such circumstances.

Jet fuel has experienced a demand plunge

Among all oil derivatives, jet fuel has experienced the highest demand plunge. Across 2020, the YoY demand plunge will be in the line of 33.6%. This is close to 2.4 million barrels per day (BPD)

Green recovery alliance

The green recovery alliance is an initiative by the European parliament. It is a development related to the crisis in the oil and airline industries.

The green recovery alliance is all about ensuring that crisis recovery is closely associated with environmental targets.

The initiator of the alliance, French MEP Pascal Canfin has expressed that with the onset of COVID-19, the environment is cleaner and pollution-free. But it does not imply that our efforts against climate change are through.

Measures need to be taken to ensure that the positive effects over the environment in the times of coronavirus pandemic stay sustainable.

Henceforth, the money that Europe reinvests in the economy will be consistent with the green deal. One of the ways of going about it is to replace fossil fuels with renewable sources of energy.

A similar development in this regard has been a cautionary note by the IMF. This warns against going ahead with business, as usual, following the coronavirus pandemic – while overlooking environmental goals.

Governments and citizens should necessarily keep the green goals in mind

This makes the world a better place for the generations that follow. It will render an influence on society and the economy. But it will also definite the direction in which we build the future of humanity.

Post coronavirus, even as we see things return to normal for the aviation industry, more money will be spent over renewable sources of energy. Similarly, stronger legislation will be in place for the regulation of oil consumption, by various industries such as airlines.

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