Covid-19: Govt bailout must to salvage airlines and hotels, say analysts

CARE says domestic airlines face severe cash flow pressures as they won't fly till mid April; airfares may remain low and certain routes may have to be scaled down

Aviation, hospitality and media companies are facing an uncertain future due to the ongoing 21-day lock down of the country and would require bailout from the government immediately, say analysts.

The aviation industry, which includes airports and their vendors and suppliers, may not fully recover any time soon post the effects of the pandemic, which has brought air traffic to a standstill. In the US, American Airlines has sought a $12 billion bailout from the government. In India too, airlines are seeking government help.

In an analysis, rating firm CARE said domestic scheduled airlines have started facing severe cash flow pressures, as they will not be functional at all till mid April. This is also leading to trimming of employee salaries apart from other issues the industry faces. “Even after the nationwide lockdown, airfares are likely to be very low considering the lack of air travel demand, which will also lead to scaling down of certain routes,” it said.  

Passenger growth is set to fall sharply and register a negative 20-25 per cent growth for FY21. Till now, passenger growth was healthy at 13.7 per cent during FY19 and 3.7 per cent during FY20 (April-February). Given the fall in airline operations, airports are also likely to operate at less than 20 per cent capacity for the month of April and less than 50 per cent till June. Decline anywhere between 8 per cent and 15 per cent is expected for passengers handled (domestic and international) by airports.

Covid-19 has also impacted March quarter for the hotels sector and as the lean season seeps in for both business and leisure segments from April, the hotel players will have some time to realign themselves (cost rationalization, process improvement measures) before the next peak season. As hotels have almost zero occupancies, Care says the operational parameters like occupancy rates – ORs & average room rates – ARRs of the hotel players are expected to get adversely impacted for next couple of quarters. "Though a medium term impact, this may lead to lower cash flows for the hotel entities and thus exert pressure on their profitability and liquidity," it said.

The most visible and immediate impact of Covid-19 is seen in the hotel and tourism sector in all its geographical segments - inbound, outbound and domestic and almost all verticals - leisure, adventure, heritage, MICE, cruise and corporate. Given various travel restrictions imposed by the Indian Government as well as Governments across the globe, forward bookings for various conferences and leisure travel bookings to foreign destinations have already been cancelled. In India, most of the summer holiday bookings have been cancelled (about 40-50 per cent most of which was to states of Kerala, Rajasthan and Goa) impacting the domestic tourism. The impact on the inbound and outbound passengers is expected to be most severe in the next couple of quarters.

India’s total foreign tourist arrivals (FTA) stood at 10.9 million and the foreign exchange earnings (FEE) stood at Rs 210,971 crore during 2019 with Maharashtra, Tamil Nadu, Uttar Pradesh and Delhi accounting for about 60 per cent of FTAs. However, now with travel restrictions in India for over 80 countries and most of the flights of major airlines being suspended along with lockdown in India, the Indian domestic as well as foreign travel and tourism industry is expected to witness a sharp negative impact in 2020.

The print media and television, filmed entertainment, live events and out of home media will take a hit on their revenues. "Like other countries, the government must come with a special package to save these industries," said a CEO of a media company.