2021-22 expected to be another year of large losses for Indian aviation industry: CAPA India

By: |
January 4, 2021 9:34 PM

When India resumed scheduled domestic passenger flights from May 25 amid the COVID-19 lockdown, floors and caps were imposed on fares based on the duration of the flights.

Oil prices and exchange rate are two of the major factors that affect costs of running an airline.Oil prices and exchange rate are two of the major factors that affect costs of running an airline.

The Indian aviation industry is expected to continue incurring large losses in 2021-22 and IndiGo airline will emerge from the COVID-19 pandemic significantly stronger than its competitors, said aviation consultancy firm CAPA India on Monday.

“Airlines will have to carry the costs of a large proportion of their fleet remaining grounded, especially those that were earlier deployed on international routes,” said CAPA India in its report about the ‘top ten trends to watch in 2021’.

While revenue remains under pressure, costs will also increase relative to FY2021, the report mentioned, adding that the Brent Crude is assumed to be at average USD 50-60 per barrel and the USD/INR exchange rate is expected to remain in the range of 73-75 in the next financial year.

Oil prices and exchange rate are two of the major factors that affect costs of running an airline.

The report said consolidation is inevitable in the Indian aviation sector and it could result in a “2-3 airline system” in the near to medium term.

“The structure of competition may change in the near to medium term, possibly resulting in a two-horse race in both the airline and airport sectors,” it mentioned.

The demand recovery, especially in international traffic, remains uncertain, it stated.?

In the absence of a full recovery in higher-yielding segments such as corporate travel, airlines cannot be profitable, it noted.

The report said lenders and investors will remain wary of the sector (especially airlines) unless the government intervenes in the form of sector-specific policy
measures.

It stated the government may be tempted to maintain price floors and caps, at least for the first half of 2021.

When India resumed scheduled domestic passenger flights from May 25 amid the COVID-19 lockdown, floors and caps were imposed on fares based on the duration of the flights.

The report said IndiGo will emerge from COVID significantly stronger relative to the competition, largely due to its very strong balance sheet.

It said international flights are expected to continue operating under ?bubble arrangements? rather than bilateral air services agreements for the foreseeable future.

Scheduled international passenger flights were suspended in India on March 23 last year due to the pandemic-induced lockdown. Since July, airlines are operating special international flights under air bubble arrangements formed with around 24 countries.

Under a bilateral air bubble arrangement, airlines of the two countries can operate flights between their territories with certain restrictions.

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