Indian carriers owe ₹3,700 crore in refunds to passengers and repaying such a large amount — if the Supreme Court takes a decision favouring air travellers — will be among the first major acid tests for airlines, according to aviation consultancy CAPA in its latest analysis on the impact of coronavirus (COVID-19) on the sector.

CAPA estimates that airlines owe nearly $500 million, which translates into ₹3,787 crore as per the current exchange rate, in refunds. This includes $300 million (₹2,200 crore) for domestic bookings and over $200 (₹1,500 crore) for international travel.

But there will be many more challenges facing the industry. As and when the ban on air travel is lifted, resumption of operations will prove to be extremely complex so much so that “some carriers may choose to remain grounded, whilst others may not survive,” the Centre for Asia Pacific Aviation (CAPA) warned in its fourth report on the impact of COVID-19 on the sector.

It noted that the safety protocols laid down by the aviation security watchdog, Bureau of Civil Aviation Security, which require airlines to leave the middle seats and the last three rows empty, will push up the fares at which airlines can break even, forcing an exit from the market by some carriers.

Moreover, aircraft utilisation may drop as they may need to spend more time on ground in between a landing and a takeoff for sanitising requirements, further mounting pressure on airlines to increase airfares.

But, with all this unfolding between June and September, when demand for travel is at its lowest in any given year, a move to hike fares may completely ‘choke off demand’, explains CAPA.

It has also further revised its estimates for the impact on passenger demand. From its forecast in April that domestic passenger demand will fall 40%, it now expects passenger trips to fall 50-60% to 5.5-7 crore trips. Similarly, international trips are likely to fall 70-75%, instead of 50%, to 2-2.7 crore trips.

The consultancy calls for the need for a revised civil aviation policy to help the sector cope with the new challenges posed by COVID-19, which it says should focus on the reason for frequent collapse of carriers in the country and the need to regulate minimum cash reserves maintained by airlines.

It also advises airlines to find ways to recapitalise to deal with different obstacles instead of relying on the government, which is dealing with competing claims for financial aid.