The fact that Jet Airways went belly up in 2019, now seems like a better story, than what could have happened now. Another airline going belly-up during an already crushing event like pandemic could have been the worst for market sentiment and investor confidence. On the hindsight, Jet Airways, had it survived this long, could have at least avoided an IBC (Insolvency and Bankruptcy Code) led resolution and would have continued to be operational.
It was a foregone conclusion for most analysts and experts by December 2020, that airline sector has already been through the worst, even though passenger numbers may not be pre-covid anytime soon.
During 2020, post pandemic induced lockdown, April and May ended up as a washout for the airlines. With operations almost at a standstill, with partial lifting of restrictions to fly passengers at a much reduced loading-factor. But this offered some respite since the planes were up and running.
Despite the beating the airlines had to face in FY21, FY22 was supposed to offer some light at the end of the tunnel. (FY- financial year April-March).
The passenger traffic and flyers regained some confidence after the initial months of lockdown up till March 2021. But given the recent developments and the “return of corona” running pan-India, where does it leave our airline players and the much more vital aviation infrastructure developers.
By now it is evident, international operations of airlines would remain regulated and restricted for at least another 6 months, as vaccination in India remains limited and is not expected to gain pace in terms of implementation before July-Sept 2021. Given the scale of pandemic outbreak in India, other countries too have been issuing curbs and restrictions to travellers as well as natives. This also leaves a large question mark on the international operations and plans of some of the domestic airlines.
Domestic passenger traffic though are non-comparable to the previous years numbers, but given the nature of events, total passenger traffic seems to have plateaued at previous years high of 7.8 million passengers in March 2021. Going by optimistic estimates, this may have near halved in April 2021. With the current restrictions and testing requirement set in place by various states, it is unlikely, the sector would witness much improvement in these numbers through 2021.
Financial performance of the two listed and largest airline in the country paints a grim picture for the overall industry.
The two airlines have been in the red in at least two out of the three “9-month period” of preceding financial year, and FY21 is bound to be among their worst performing year ever. (ref. Table1)
To add to the existing woes, yields seem to be inching up and these players wouldn’t find it easy to raise debt. Thus, equity markets may be the last resort for them, though the valuations may not come easy. Given the impact of the pandemic on the sector, and it looks like a long road to recovery, airlines may find the going a bit more difficult, both financially and operationally.
What may have seemed like a fairytale year for the industry, has started becoming much of a nightmare. And thus, the important question: Should the Government step in to salvage the airline industry?
Please share your views !!!!
By – Ashish K Nainan (Aviation Analyst)