Coronavirus impact on aviation industry: Low-cost airfare schemes could be halted for a long time

DelhiWritten By: Sumit ChaturvediUpdated: Apr 01, 2020, 02:50 PM IST
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Dutch aviation consulting firm To70 and the Aviation Safety Network both reported Monday there were no commercial passenger jet fatalities in 2017. Photograph:(Reuters)

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From low-cost pocket-friendly carriers to full-service airlines, no one in the aviation world was prepared for a global crisis of this scale.

Visiting Thailand or Dubai was cheaper than flying to Goa or Kerala a few months ago. The ultra-low or the budget airfares resulted in a travel boom and it helped in turning the dreams of foreign holidays into reality for many. 

From Mauritius to Malaysia, the budget or low airfares enticed many to explore the new holiday destinations with millions in India and overseas flying for the first time. But with the coronavirus pandemic striking travel and aviation world, the dreams of many for foreign holidays may be over for now or delayed indefinitely. 

From low-cost pocket-friendly carriers to full-service airlines, no one in the aviation world was prepared for a global crisis of this scale. Coronavirus pandemic has broken the backbone of the aviation industry and with this, it may be a long-lasting goodbye to the popular super saver airfare schemes or pocket-friendly budget airfare schemes.

Analysts point out with the global travel and tourism industry taking a massive hit, the aviation industry might be limited to the essential air or business and need-based travel for some time to come. The low-cost airfares are a result of competition among the airlines to fill seats fast. With many airlines ceasing to exist in future as a result of coronavirus pandemic, low competition can result in airlines resorting to collusion to charge high fares for high margins. 

The low-cost airfares were also the result of budget travel that has also taken a massive hit with low-cost holiday destinations like Thailand and Dubai locking down the cities. Also, expensive loans taken for aircraft purchase or high lease costs of the planes won't allow many low-cost airlines to keep flying. Low-cost airlines that started in the US and Europe were quite popular among bag packers or budget holiday goers and the model has been replicated worldwide. But with coronavirus pandemic, everything can change. Sydney-based CAPA Centre for Aviation estimates that many carriers might go bankrupt by the end of May 2020 itself.  

A Bloomberg estimate says the airline that are in danger of going under are Pakistan International Airlines, Spicejet, Norwegian, American airlines, Skywest, Air Asia, Asiana Airlines, Virgin Australia, Korean Air, China Eastern, and China Southern airlines. 

"In short to medium term, the demand for air travel will remain low. Many airlines will go out of business. But the remaining ones will be more sustainable in the long term as there will be a capacity rationalisation. Some fare models will have to be reworked", said a veteran of the aviation industry who has served at managerial positions in both low cost and full-service carriers. 

Based on the assumption that the airlines are not grounded beyond April 15, when the current lockdown ends, estimates suggest the Indian airline industry including companies providing auxiliary services like airports and ground handlers could suffer losses ranging from 3.3 billion to 3.6 billion dollars in the first three months of fiscal 2021 ending in June. 

But the situation can change if governments across the world go for massive bailouts for the aviation and tourism sector including one in India.

"Advance cheap airfares could still come even after the Covid-19 crisis is over. After all it is an easier way to raise cash much in advance and many airlines will be in dire need of cash going forward", said another aviation industry executive. 

(Disclaimer: The opinions expressed above are the personal views of the author and do not reflect the views of ZMCL)