India's aviation industry is likely to be on a two-year pause as a result of the unprecedented disruption due to the COVID-19 pandemic, AirAsia India Chief Executive Officer Sunil Bhaskaran said.
Speaking in CAPA India webinar on designing a sustainable roadmap for the revival of Indian aviation, Bhaskaran said that while there is no doubt about a strong demand outlook for the Indian market in the long run, the next few quarters are going to be challenging with less number of flights and weak load factors.
"All expansions are on hold. We are struggling to keep up to whatever capacity we have. Unfortunately, aviation industry is a contract between a lessor and a lessee, so strongly in favour of lessor that even if we would like to, we could not return the aircraft or the cost of it would be so high that it would not be worthwhile. As I see today, it has to come with the confidence of customers which will come either with a cure or a vaccine in place. I don't see that coming back in 18-24 months. So I think it is a pause for Indian aviation for two years. But we will surely get back to the same growth path after that," Bhaskaran said.
The budget carrier is currently operating with 20 percent of its total capacity and witnessing an average of 50 percent load factor since it resumed operations from May 25. So far, the quarantine rules of states are playing the biggest role in driving demand such as those making mandatory institutional quarantine are seeing less demand. There is also demand from a large number of migrant workers who want to return to their destinations, primarily to the eastern part of the country.
Bhaskaran said that the airline is glad that it is finally flying after being grounded for two months but admitted that there was a lot of chaos and confusion on May 25 due to the last minute clarity on quarantine rules by several states. In fact, mandatory institutional quarantine for arriving passengers in a state like Karnataka is leading to abysmal load factor on incoming flights to Bengaluru while load factors coming out of the city are "good".
It is important to note that while flight operations were expected to be resumed from May 25, clarity on quarantine rules of several states only emerged towards the late hours of May 24. In fact, state governments of West Bengal and Andhra Pradesh postponed flights resumption and those of Maharashtra, Tamil Nadu and Telangana imposed a limit on flight operations in their states.
Bhaskaran expects the situation to stabilize over the next 1-2 weeks in terms of confusion and chaos about state-specific rules but is prepared for a difficult scenario in terms of yield over the first two quarters on "difficult" load factors and less flights as the pent-up demand is going to sustain for another 2-3 weeks only.
In addition to limited bookings, less flights and weak load factors, capped air fares are another worry for airlines. The government has imposed a lower and upper limit on airfares until August 24. AirAsia India hopes that the measure is a "very very short-term measure".
"Not in favour of fare cap. I think we are in market economy. I think it is important that the markets decide for themselves what the pricing is. In these unprecedented times, probably there was a fear that prices could have gone through the roof which is why the government has put it. I just hope it is extremely temporary and it gets out of the way. I don't think this should be a permanent measure," Bhaskaran said.
For now, low oil prices are proving for a bit of a cushion for airlines as earlier expensive fuel accounted for nearly 40 percent expenditure of Indian airlines. A "leaner" AirAsia India hopes to cover at least the basic variable cost in all the flights it operate on the back of low fuel prices.
"Between these two (capped fares and oil prices) we have to manage. We have to just get across these 3 months, 6 months, 9 months, may be 12 months and get back to what is going to be a new normal for Indian aviation. For sure, I don't think future demand is under question. It is just that how well we can cross this extremely difficult time, when all of us are losing cash hand over fist, and get across to the other side. If we are able to get there, we will be able to be a part of India's growth story," Bhaskaran said.
Three months back, getting approval for international flights would have been top of Bhaskaran's agenda, but it is no longer the case. The airline is rather relieved that it does not have to worry about international flights currently as that segment will take longer to resume as compared to domestic.
"When we look back, probably the luckiest thing which has happened to us is that we didn't have international otherwise the hit to us would have been much worse while we navigate through these weeks than what it has been to all our competitors who also have international. While domestic is going to come back, I don't think international is going to come back so quickly and to that extent, we have more time to plan international," Bhaskaran said.
However, as bookings are oxygen for an airline and with pent-up demand likely to last for 2-3 weeks, it is up to the airlines and airports to bring the confidence in people for travelling.
"I remember Rono (Rono Dutta of IndiGo) making a statement that bookings are oxygen for an airline and that particular oxygen was cut off for a long time and we were not allowed to book and therefore the ability to forecast how things will pan out... we don't have that. Because it is very few days since bookings have started. We have taken a conservative view. We would be very happy to see an upside to what we have planned," Bhaskaran said.
"I am hoping it won't be so fiercely competitive post COVID because there will be some adjustments as it happens," he added.
AirAsia India is a joint venture between Tata Sons and AirAsia Investment Ltd with a fleet of 30 A320 aircraft it operates to 21 cities. It had 7.6 percent market share in domestic aviation as per March data from the Directorate General of Civil Aviation.
