Rumblings and grumblings in the sky

As we approach the first anniversary of the Covid-induced lockdown and the ensuing crisis for the aviation sector, let’s count the blessings first. In India, domestic air traffic is picking up, revenues are reasonably robust, cargo has emerged from the shadows as part saviour, market leader IndiGo has been making noises about hiring again and the misgivings about the closure of smaller players, namely SpiceJet and GoAir, have given way to hope. The reasoning is: If they survived the total cessation of flights, things can now only get better.

Yet, 2021 has begun on a worse note for the sector with oil prices threatening to play spoilsport. Oil prices have been inching up steadily (moving between $60 and $65 per barrel currently against $40 around April-May last year).

That’s a big spoiler but there’s more. International traffic is showing no sign of picking up and for Indian carriers, West Asia — a lucrative market — is still out of bounds. Salary cuts are the order of the day and although pilots are earning a bit more due to increased flying hours, the cuts remain (IndiGo pilots say they are earning 28-35 per cent less than before Covid). Job losses across the sector continue. The aviation minister told Parliament that the industry lost around 18,000 jobs over four months. Pilots across airlines have become an unhappier lot and have adopted the “grin and bear it” attitude. Most categories of employees are resigned to their fate since the only option is to quit and join the jobless brigade.

But perhaps one of the biggest worries as far as the future goes is the accumulated liabilities and bills of some of the airlines in India. As the CEO of an airline pointed out, these bills will have to be paid eventually. They may be reduced or payable over an extended period, but all the dues to vendors, suppliers, lessors that are currently being put in abeyance cannot be left unpaid for eternity. “The chickens will come home to roost at some stage”, as he  pointed out.

In the third quarter of FY21 (October to December), India’s largest airline by market share and fleet size, IndiGo, reported a daily cash burn of Rs 15 crore. For the three month period ending December 2020, the total cash burn amounted to Rs 450 crore. Extrapolating from this data, the combined cash burn of SpiceJet and GoAir is expected to be anywhere between Rs 150 crore  and Rs 175 crore, according to industry sources. Add to this the past accumulated liabilities of the two and it’s not a pretty picture. Air India, too, would be adding to this dismal picture but it remains far from clear to what extent and who would pay the final bill.

A few things though are clear. One, the failure of the cash-strapped private players to raise funding to have some cash balance and reserves is giving jitters to the wider industry, their employees and various stakeholders in the sector. The question being asked is how long this party can last. The repercussions of the inability to pay or, even worse, possible defaults (as in the past with Kingfisher) is likely to be felt by the sector as a whole, and vendors are getting more and more wary of dealing with Indian carriers.

Meanwhile, the aviation sector continues to grapple with two other uncertainties. One, the imminent return of Jet Airways, a matter that surfaces every few weeks, above all in the press. If the new combine that is keen to revive the airline does manage to get its act together, expect some jostling over the valuable Mumbai slots, as present incumbents are unlikely to acquiesce without a fight. Many in the sector, including several old Jet loyalists would be overjoyed to see their much loved carrier in the skies again.

Two, the big elephant in the room remains the national carrier and its fate, which at present seems inextricably linked with the fate of Vistara and AirAsia India. This will be the final deciding factor of how the sector shapes up in the coming years and how many other players survive the changed scenario. Many have their hopes pinned on a second large player in the sector — a combination of Air India, Vistara and AirAsia — with the Tata brand, goodwill and cheque book at its behest, proving a worthy rival to IndiGo and a strong competitor to a clutch of international airlines that have so far had unhindered access to India’s growing international passenger traffic.