How the second Covid-19 wave could mar the summer of recovery for airlines

Topics Airports | Coronavirus | Lockdown

Airline lobby group IATA estimates that low cost airlines need to fly at 80 per cent occupancy to be profitable
Last Sunday as Prime Minister Narendra Modi was meeting top bureaucrats over rising Covid cases, chief executive of a private airline asked his head of operations to prepare for a sudden grounding of operations.

Just a month ago, the CEO had met investors and the talk revolved around a total recovery and bright future of Indian aviation. He’s back to plugging daily cash burn.

Within two weeks of many airlines deciding to roll back salary cuts  encouraged by a steady increase in traffic flow, a second wave of coronavirus along with rules of compulsory RT-PCR test has hit forward bookings. The fears of last summer, when the pandemic had overturned all the wisdom of airline boardrooms, have returned to haunt the aviation industry.

According to an official in the Ministry of Civil Aviation, flight occupancy is down to 60 per cent from 70 per cent in the first week of March. Airline lobby group IATA estimates that low cost airlines need to fly at 80 per cent occupancy to be profitable.

“The rising number of cases has certainly deferred a recovery. But with increasing vaccination drive, I expect a total recovery in six to eight months,” said Directorate General of Civil Aviation (DGCA) head Arun Kumar.

With caution in the air, airlines are reviewing their plans on aircraft deliveries and in some cases deferring fresh induction of aircraft. “SpiceJet and AirAsia together were supposed to bring in eight new aircraft by the end of May. Those are in cold storage now as airlines are unsure on what demand will look like a month later,” a person in know said.

A commercial head of a private airline who hasn’t taken leave since last March was planning a family vacation this April. “Forward bookings for 30 days are again plummeting. I have zero bookings for May. Things were looking stable and we had started rebuilding schedules with some predictability on occupancy. That is all gone now. I’m frustrated and waiting for this (unpredictability) to end,” he said.

Revenue management--the science of getting the highest price for a ticket-- is based on historical data. With big data computing, airlines know with precision what the demand will be for a certain flight on a certain day. But, the changing pattern of the virus has thrown that out of the window. “For the summer schedule, we were depending on historical data from 2019 thinking things were back to normal. Now there is no relation. We are again flying blind,” a network planner at Air India said.

India’s largest carrier IndiGo too has gone on a wait and watch mode. Sources said pilot schedules had been made for 15 days rather than the usual practice of preparing it for full month.

“We are waiting and watching before taking a call. If asked for a comparison, I shouldn’t say that things are as bad as last year but that predictability of booking which helps in preparing a robust schedule is lost again,” said an IndiGo executive.

With around 280 aircraft in its fleet and international travel closed, network planners of IndiGo have been experimenting with new destinations since they still have plenty of aircraft and crews sitting around. Any further hit to demand would be damaging for IndiGo as it will find it hard to deploy aircraft profitably.

According to IndiGo CEO Ronojoy Dutta, predictability of demand depends on sentiment and when people get afraid of the virus, bookings start to plummet. “It really is very news flow dependent. If the market is quiet, there is no big news coming, then the revenue is strong,” Dutta had said.

For the government too, eagerly looking for a successful sale of Air India, the second wave has come as a rude shock. Officials at DIPAM, the nodal body looking to sell Air India, now fear the financial bids which were supposed to come in by the second week of May could  be further lowered as revival of international travel looks distant.

Staring at a washout of the summer schedule, airline executives are keeping their fingers crossed and hoping that the ongoing vaccination drive will help control things.

“We can only hope that people will be more responsible in their behaviour and the government in its vaccination plan so that our jobs are saved,” said a pilot.

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