The Airline companies in India posted their worst losses in five years in 2018-19. The combined losses in the sector stood at Rs. 6739 crores in 2018-19. COVID-19 might worsen this further and threaten the survival of some of these airlines.
One of the worst hit sectors by the COVID-19 pandemic is the aviation sector. Public transport including flights were grounded in India for over two months to restrict the movement of people to control the spread of the coronavirus. Domestic flights have since resumed services in India from 25 May 2020 with heightened safety measures and restrictions such as social distancing, respiratory hygiene, and regular disinfection of aircrafts and airports. The lockdown followed by restricted opening of the sector has put to test the sustainability of many airline companies since the additional expenses can worsen the balance sheets of these companies who are already in the negative.
Only 3 out of 18 Airline companies made profits in 2018-19
According to a response in Lok Sabha during the last session (in March 2020), almost all the airlines, except for AI Express, Go Air, and Blue Dart (a cargo carrier) reported operating loss in financial year 2018-19. Even the market leaders (in terms of market share) such as IndiGo, SpiceJet and the state-owned Air India have all reported loss in 2018-19. Air India suffered the maximum loss of Rs. 4,685 crores, which is close to twice the combined loss reported by all the private airline companies in the same year. Vistara is next in line with a loss of over Rs. 900 crores, while Air Asia has recorded an operating loss Rs. 703 crores. Indigo and SpiceJet have recorded a loss of Rs. 490 crores and Rs. 266 crores respectively. Surprisingly, AI Express which is state-owned, recorded the highest profit of Rs. 433 crores in 2018-19.
Loss incurred in 2018-19 is the highest in five years
2018-19 has been a bad year for the airline companies. In general, it can be observed that those companies that reported a loss this year, have recorded their highest loss in the last five years, in 2018-19. Only three companies have managed to make profits between 2014-15 and 2018-19. Blue Dart airlines, a private cargo airline, has reported profits in each of the last five years. During the same period, AI Express, which is a wholly owned subsidiary of Air India, and Go Air have also reported profits in each of the five years. However, the profit reported in 2018-19 is less than the previous years.
Meanwhile, Indigo reported a loss in 2018-19, for the first time in the last five years, and Spice Jet has reported a loss for the second time. Air Asia, Alliance Air and Vistara have been reporting losses consecutively for the fifth year. Jet Airways and Jet Lite have ceased operations in India since 2019 because of high debts. A few other companies that ceased operation during these five years are Air Costa, Air Pegasus, and Quick Jet Cargo.
Net operating Loss of all Airlines in 2018-19 was Rs. 6,739 crores
The overall performance of both private and state-owned companies is mixed in the last five years. A total loss of around Rs. 3,568 crores were reported in 2014-15. However, there was a net profit for three years between 2015-16 and 2017-18, despite the profits dipping. From Rs. 4,333 crores in 2015-16, the net profit of all the airline companies reduced to Rs. 913 crores in 2017-18. In fact, the profits dropped significantly in these three years by an average rate of 39% each year. The year 2018-19 has been the worst year in the last five years with the net operating loss of all the airlines touching Rs. 6,739 crores, the highest in the five years and almost twice the loss recorded in 2014-15.
State owned Airlines have recorded twice the amount of losses compared to private Airlines
A comparison of the performance based on ownership shows that the state-owned companies recorded profits in only two years, 2015-16 and 2016-17. Private Airline companies recorded profits almost five times that of state owned, in 2015-16 and twice the amount 2016-17. In 2017-18, private companies recorded profits while their state-owned counterparts recorded a loss of around Rs. 1,245 crores. The loss in 2018-19 stood at around Rs. 4, 424 crores for state owned while private companies recorded a loss of Rs. 2,315 crores.
Operating cost has increased by 23% in the last five years
The operating cost/expense for airlines has increased by around 23% between 2014-15 and 2018-19 while the operating revenue has increased by only around 20%. Operating expenses include salary of pilots and staff, fuel prices, maintenance, etc. The operating expense for private companies has almost doubled since 2016-17.
COVID-19 might exacerbate the situation for Airlines
Data indicates that most airline companies were already running in losses prior to the coronavirus outbreak. In the current financial year 2020-21, not only were the flights halted for two months during peak vacation period when demand is the highest, but the operating cost is also set to increase because of the additional safety measures for COVID-19. These additional safety measures include protective gears for staff, regular disinfection of flights, safety measures for passengers etc.
On top of this, with physical meetings, conferences & social gatherings ruled out for the next few months, the demand might not be back to normal anytime soon. People also might prefer to travel only if it’s absolutely necessary, because of fear of contracting the virus. Tourism industry is also significantly hit which will also have an impact on aviation. International travel demand will be far worse since countries have not fully opened their borders yet. India is yet to officially open international air travel barring a few special flights.
Thus, the impending losses in the current financial year might threaten the survival of many airline companies. No specific relief measures have been announced by the union government to help the aviation sector.
Airspace regulations to be relaxed in India under Atmanirbhar scheme
To provide relief for the sector, under the fourth tranche of Atmanirbhar Bharat Abhiyan, Finance Minister announced that restrictions on Indian Air Space would be eased. Through this move, it is expected to bring about a benefit of Rs. 1000 crores for the aviation sector through reduced fuel usage, travel time, and more optimal use of air space. Further, she also announced that the taxations on maintenance, repair and operations will be rationalized, in order to make India the hub for aircraft maintenance.
Featured Image: COVID-19 impact on Airline Companies