Impact of the second wave

Extracts from the latest CAPA Advisory India Aviation Outlook FY2022 reflect how the second wave of the infection will impact key trends in Indian aviation in FY2022. It will take significant time to restore the confidence of inbound tourists and business travellers in India as a destination. Pre-COVID traffic is only expected to be restored by FY2024.

In early Jan-2021, CAPA Advisory had released a report on ‘Key Trends in Indian Aviation in FY2022’. At that time, a steady recovery in traffic was visible, particularly in the domestic sector. For the next couple of months these encouraging trends continued, while the number of new daily COVID cases declined. But since late March 2021, there has been a tragic turn of events, with cases and fatalities from the virus surging.

The re-imposition of formal lockdowns as well as passenger fear has seen traffic numbers halve in a matter of a couple of weeks, with the likelihood that subdued demand will continue for several months to come. This will deal a body blow to the industry, crushing the optimism that had been emerging in recent months. Most Indian airlines were already very vulnerable prior to COVID, with weak balance sheets and poor liquidity. COVID inflicted massive losses and an increasing debt burden on carriers that were structurally ill-equipped to absorb this impact. The extent of the challenge is reflected in the fact that Indian carriers under-recovered almost USD70 per passenger in FY21.

The twin shocks of the first and second waves, occurring in the space of a little of over 12 months, will leave a long-term structural impact. Supply-side risks have increased markedly, and were they to eventuate they would likely result in an imbalance in the competitive structure of the industry, possibly creating policy and regulatory challenges.

CAPA India once again urges the Ministry of Civil Aviation to create a new policy framework. The original National Civil Aviation Policy (NCAP) released in 2016 was designed for an environment of growth. Post-COVID there is a need for NCAP 2.0 – possibly as an interim measure – to support sectoral emergence from the crisis through the stages of survival, stabilisation, recovery and eventually expansion. This is the time to take decisions and pursue reforms.