Indian Aviation Demand Likely To Be Subdued In Current Financial Year: Report

The aviation industry achieved a load factor of just 55 per cent in first quarter of this financial year despite operating at merely 30 per cent of usual capacity.

Indian Aviation Demand Likely To Be Subdued In Current Financial Year: Report

The aviation industry achieved a load factor of just 55 per cent in first quarter of this financial year.

The demand scenario in the Indian aviation sector is likely to remain very subdued until at least the end of second quarter of financial year 2021, with no certainty of revival in the second half, advisory firm CAPA India (Centre for Asia Pacific Aviation-India) said in its June Report, as the daily acceleration in Covid-19 cases across the country continues to weaken consumer confidence. Traffic between metros has witnessed a more significant impact as these have been most affected by coronavirus, the report highlighted.

In its report released on July 3, 2020, CAPA India said that since the resumption of domestic operations on May 25, 2020, demand has been weaker than expected. The industry has achieved a load factor of just around 55 per cent in the first quarter of the ongoing financial year, despite operating at 30 per cent of its usual capacity.

The month of June saw around 70,000 daily passengers on an average, compared to nearly 400,000 daily domestic airline passengers in the same month last year, amounting to a year-on-year decline of around 80 per cent.

There was hope that demand would pick up after the strict lockdown began to be eased in June. But the pent-up demand has proven to be elusive as different states differ in their quarantine requirements, and these are often inconsistent and confusing.

Passengers carried by domestic airlines during January-June 2020 were 351.78 lakh as against 706.60 lakh during the corresponding period of the previous year, amounting to an annual growth of -50.22 per cent and monthly growth of -83.50 per cent.

And with projections of domestic traffic declining to 55-70 million in FY2021, the airlines in India are likely to have a surplus fleet of 200-250 aircraft over the next 6-12 months.

"The outlook remains soft. Recent traffic has mostly comprised of essential repositioning traffic, with passengers that were stuck in the wrong place when the lockdown was announced, returning to their home base. Discretionary travel has been limited, as reflected in the fact that more than 90 percent of bookings have been for one-way travel, compared with 40 per cent prior to Covid," the report added.

The aviation sector is likely to shrink significantly in India as the Covid-19 pandemic triggers consolidation in the beleaguered sector, the report suggests. "Consolidation is looking more likely and will result in a very significant change in the structure of the industry. India may be headed for a 2-3 airline market if timely recapitalisation does not happen," the report said. In such a scenario, IndiGo will have a domestic share greater than 70 per cent and the other surviving carrier/s will be relatively weak.

The re-capitalisation effort itself would be highly capital-intensive as $3.5 billion would be required to recapitalise the Indian aviation sector, excluding IndiGo airlines, the report concluded.