Sustainability of airlines in India with Covid-19: Challenges ahead and possible way-outs
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Sustainability of airlines in India with Covid‑19: Challenges ahead and possible way‑outs Anshu Agrawal1 Received: 2 July 2020 / Accepted: 11 August 2020 © Springer Nature Limited 2020
Abstract Coronavirus outbreak has been highly disruptive for aviation sector, threatening the survival and sustainability of airlines. Apart from massive losses attributed to suspended operations, industry foresee a grim recession ahead. Restrictive movements, weak tourism, curtailed income, compressed commercial activities and fear psychosis are expected to compress the passenger demand from 30 to 60%, endangering the commercial viability of airlines operation. Fragile to withstand the cyclic momentary shocks of oil price fluctuation, demand flux, declining currency, airlines in India warrants for robust structural changes in their operating strategies, business model, revenue and pricing strategies to survive the long-lasting consequences of Covid-19. Paper attempts to analyze impact of lockdown and covid crisis on airlines in India and possible challenges ahead. Study also suggests the possible way-out for mitigating the expected losses. Keywords Airlines · Liquidity · Covid-19 impact · Altman Z-score · Cash burn rate · Cargo-cum-passenger model
Introduction The world, at present is combating with pandemic Covid-19. Emerged from Wuhan (China) in December 2019, within few months it has taken 215 countries across the globe into its clutches. With 580 reported cases on 22 January 2020, the infected cases have crossed 10. 62 million as on July 1.1 India is no different; with 3 cases reported as on 22 February, the number has surpassed 587,092,2 whilst three extended phases of lockdown.3 The magnitude of virus contagion spread in the absence of any antidote developed so far has left the countries across the world with quarantine as the only remedy, despite of its drastic consequences on the economy. Aviation sectors is perhaps worst hit with covid impact. The preventive restrictive movements have drastically dented the airlines and allied services with huge losses. Airlines passengers’ services in India remain suspended for sixty day (25 March 2020 to 24 May 2020), bringing massive loss to the industry. According to DGCA, six days suspended operations of March leads to 33% decline in passenger traffic * Anshu Agrawal [email protected] 1
Indian Institute of Management Sirmaur, Sirmaur, Himachal Pradesh, India
(from 11.5 million reported in March 2019 to 7.8 million in March 2020).4 As per CRISIL Infrastructure Advisory report, the expected revenue loss to the Indian aviation sector due to lockdown amounts to 240 billion; inter se, airlines account for 70% losses, followed by allied servicesground handling, etc. CAPA India estimates the industry staggering losses of 240 to 270 billion in April-June quarter, assuming operations to remain suspended till June 2020. This imply loss of 2.67 to 3 billion for per day of extended lockdown.5 In addition to the above losses, the industry foresees grim recession ahea
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