Teji Mandi Explains: Flying into dark hole - domestic airlines continue to struggle amid persisting demand uncertainty
Representational Image/ Pixabay

CAPA India (CAPA), a reputed global aviation consultant, believes that demand has moderately improved in the current financial year. But, it is estimated to remain 42% lower than FY20. And it could recover to the pre-COVID level by H2FY23 if there is no significant impact of the third wave.

International travel is likely to take longer and expected to remain ~75% lower from FY20 levels in FY22. It is expected to return to normalcy in FY24. CAPA India suggests that capacity cap could ease from Q3FY22 onward while international operations to and from India are expected to continue under ‘air bubble’ agreements.

The cargo segment has emerged as an alternative source of revenue in the absence of passengers, growing at 15% YoY.

Excess Fleet Size

CAPA points out that India currently has a fleet of 700 aeroplanes. Out of that, 250+ remain unused led by lower demand. Airlines could look to reduce the fleet and retire ~80-100 aircraft when they come for lease renewal.

Airlines could resort to operating with reduced fleet size and reduced cost. It might hurt them in the future if they pass on the opportunity to modernize their fleet by inducting fuel-efficient and low-maintenance aircraft like Neo or MAX.

CAPA projects limited scope for easing capacity restriction shortly, which will expand their losses in the coming quarters. The industry is expected to register cumulative losses of USD 3.6-3.8 bn in FY21.

The industry would require USD 2-2.5 bn funding to survive and start operations when restrictions are eased. Airlines are renegotiating lease rentals to prepare for the continued restrictions. However, the outcome will depend on the strength of the balance sheet and relationship with lessors.

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