‘Airline sector was already weak, COVID-19 exposed it’

Industry experts call for structural, regulatory changes

With five of India’s six airlines operating with weak balance sheets that are compounding their problems in the time of COVID-19, industry experts have called for immediate structural and regulatory changes that could reverse their fortunes.

They were speaking at a webinar organised by leading aviation consulting firm CAPA India. “The main issue with Indian airlines is their low-yield and high-cost structure. We would look for a higher yield market [to make airlines sustain]. The next 4 to 6 months are crucial as to who [which airline] will be around,” said Jeffrey Goh, CEO, Star Alliance.

He said despite the setback, India must invest in improving aviation related infrastructure. Stressing that Indian aviation had been suffering on account of profitless growth, Kapil Kaul, director and CEO, CAPA Advisory said, “Despite many positive developments since deregulation almost 30 years ago, India’s potential has not been realised. Indian aviation has been caught in a cycle of profitless growth, punctuated by regular crises every 5-7 years.”

“The sector was already weak. COVID simply exposed just how vulnerable the industry is. [This] must be used as a turning point to [become] a more profitable, resilient industry,” he said.

Some of the main problems with the airlines sector is the low entry barrier as airlines require paid-up capital of just $7 million to start and the renewal of an AOP does not involve any test of financial fitness.

“Airlines without cash, that are technically bankrupt, continue to expand. The operating environment in India is characterised by high costs and poor planning. Due to their inability to control costs in FY19 SG [SpiceJet], G8 [GoAir], UK [Vistara] and I5 [AirAsia India] combined lost an average of $5/passenger,” he said.

Stating that COVID has provided a pause for reflection, he said the last three months has delivered negative outcomes that were previously unthinkable.

“We should strive to deliver similarly unthinkable positive outcomes as we emerge from COVID. We should not waste this opportunity to rethink the industry, in India and globally,” Mr. Kaul said.

Sunil Bhaskaran, MD & CEO, AirAsia India, said they had used this occasion to further improve on cost.

“We have taken action to reduce fixed cost. We will cover the variable cost at a time when fuel prices are now. We have to see through the next 9 months as to how to get across this time,” he said.

As per IATA’s observations, many carriers are on a survival mode and now they must ensure that they are viable to bridge the gap.

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