NEW DELHI : Cash-strapped airlines in India are worried about a likely fall in demand as more Covid-19 infections emerge in the country, potentially dampening appetite for air travel.
Considering that many cases were detected only in March, a decline in traffic in the coming months remains a possibility if the epidemic is not contained soon.
“Aviation is one of the sectors most hit by the likely demand slowdown based on the ramifications of nCoV (Covid-19)," said a 5 March ICICI Securities report on listed Indian airlines. “However, lower crude prices and possible adjusting of frequencies to maintain PLFs (passenger load factor) are two available offsets," it added.
Brent crude price stood at $51.21 a barrel on Thursday, down 22% from a year ago.
“I don’t think that the domestic demand during January and February was in any way affected due to the outbreak of Covid-19," a senior executive at a Gurugram-based low-fare airline said. “But with several cases being reported during March, we are cautious about future," the official added on condition of anonymity.
Most Indian airlines are likely to end the fiscal year with losses due to high costs and pricing pressures. Though cheaper fuel could provide some respite, the widening epidemic could slacken demand.
“Covid-19 cases in India surfaced just as we were getting optimistic about demand," an airline executive at a full-service carrier said, also on condition of anonymity.
Last December, aviation consultancy firm CAPA India had downgraded its earlier estimates for Indian airlines, which was a full-year profit of $500 million to $700 million ( ₹3,561 crore to ₹4,985 crore), to losses of over $600 million ( ₹4,273 crore) in FY 2019-20. This was before the epidemic reached other countries.
In their quest to capture the capacity vacuum left by the grounding of Jet Airways last year, airlines had cut fares and added capacity.
But nearly every carrier is now under pressure. Airlines had also bet on the latest and most fuel-efficient aircraft to squeeze out profits wherever they could. But that strategy appears to have backfired with delay in deliveries of Boeing 737Max planes and snags with Pratt & Whitney engines.
Covid-19 infections worldwide have crossed 95,500, while the death toll has risen to 3,285.
Globally, aviation has been badly hit by the outbreak, with airlines grounding fleets and reducing capacity amid weak demand.
Germany’s Lufthansa on Wednesday grounded 150 of its 750 global aircraft fleet due to declining demand.
Aviation industry lobby group The International Air Transport Association (IATA) has warned that the Covid-19 outbreak, if not further contained, could cost airlines as much as $113 billion in lost revenue.
“IATA now sees 2020 global revenue losses for the passenger business of between $63 billion (in a scenario where Covid-19 is contained in current markets) and $113 billion (in a scenario with a broader spreading of Covid-19)," the industry body said in a statement.
News reports also state that French aircraft manufacturer Airbus SE is considering a cut in production of A330neo aircraft.
Meanwhile, listed Indian airlines like SpiceJet Ltd and Interglobe Aviation Ltd that runs IndiGo could be headed for tough times.
SpiceJet is stretched in terms of its balance sheet, but a combination of compensation from Boeing and lower crude prices should provide sustenance, the ICICI Securities report mentioned above said. “IndiGo is relatively better placed on account of balance sheet," it added.
