India went into a national lockdown in March 2020 and along with that, the aviation industry, which was growing at double digits, came to a standstill. All domestic and international flights were suspended until 25 May, when the government opened the skies for domestic travel. International travel has been limited to repatriation flights under the “Vande Bharat Mission”. As of July 15, bilateral air bubbles have been established with the USA, France and Germany and similar agreements with Canada, UK and Gulf countries are also being considered.

Aviation in India is facing an uphill challenge. Based on Flightradar24 data, airlines were only flying 25% of flights in June 2020 compared to the same period last year. This was partially driven by the 33% cap on domestic airline capacity imposed by the government. Domestic passengers carried in the first two quarters of 2020 reduced by almost half, dropping from 70.7m in 2019 to 35.2m in 2020.

Figure 1: COVID-19 cases and year-on-year change in flights in India

COVID-19 cases and year-on-year change in flights in India
Source: Flightradar24, and ICF Analysis. Note: Seven-day moving average of passenger flights is used for YoY change.

India suspended its flights only 11 days after the 100th COVID-19 case, much earlier than other countries. Moreover, India was one of the few countries to completely stop all commercial air travel. While other countries enforced measures such as lockdowns and suspended visas, air travel was not entirely prohibited, as seen in Figure 2 below.

The UK, while initially resilient, followed a similar trend as India. In contrast, the US and Chinese carriers, encouraged by their respective governments, managed to maintain a relatively strong presence in the market. 130 days since the 100th case, China’s domestic market reached 80% of its 2019 levels. International travel has been also permitted in China, although restricted by the “five-one” policy1. In the US, American Airlines announced plans to fly over 55% of its 2019 domestic schedule in July and August; and even United Airlines plans fly 48% of its 2019 schedule in August compared to 2019 levels, up from 30% in July.

Figure 2: Year-on-year change in flights in India and other countries, 2019 vs 2020

Year-on-year change in flights in India and other countries, 2019 vs 2020
Source: Flightradar24, Harvard Dataverse, and ICF Analysis. Note: Seven-day moving average of passenger flights is used for YoY change.

India’s aviation industry is on the rebound but with the rising infection rate, recovery is slower than in other countries. The upcoming festive season starting in September, however, may bring a glimmer of hope to the struggling industry. The Chinese market, for example, witnessed a rebound to over 50% of last year’s level during the three-day Dragon Boat Festival, as seen around day 130 in the figure above.

Indian airlines struggle to fill up seats

The government increased the cap on domestic airline capacity from 33% to 45% in late June but airline interviews suggest that they are flying lower than the cap as they struggle to fill up the aircraft. Load factors are averaging at 61% in June 2020, a considerable decline from the pre-pandemic period load factors of 90%. Further, airlines are operating certain routes like Delhi-Kanpur and Delhi-Coimbatore with relatively lower load factors to retain their market share.

Inconsistencies and frequent changes in state-wise flight restrictions and quarantine rules have also made it difficult for airlines to plan their network. For example, Mumbai airport is permitted to operate only a limited number of daily flights to contain the spread of the virus. West Bengal has also restricted domestic flights from six cities and imposed a biweekly lockdown until August 31. As a result, airlines have been unable to ramp up capacity on certain preferred routes.

After the resumption of service in May, IndiGo has retained its market leader position with over 50% market share, benefiting from a large fleet size and lower liquidity pressure compared to other carriers. GoAir saw a 7% drop in market share driven by pilot shortages and A320neo engine replacement issues.

Figure 3: Domestic market share and load factors for Indian airlines, Apr-Jun 2019 vs Apr-Jun 2020

Domestic market share and load factors for Indian airlines, Apr-Jun 2019 vs Apr-Jun 2020
Source: Directorate General of Civil Aviation

Evolving travel trends

Unlike a steady-state domestic market, the demand seen in the last few months has been largely unidirectional attributed to essential travel and return of migrant labor to their home cities. City pairs such as Delhi-Patna, Delhi-Srinagar, Bangalore-Kolkata, and Delhi-Lucknow now feature among the top city pairs in India while most Tier I-Tier I city pairs have fallen behind.

Figure 4: Ranking of Top 10 City Pairs in India, by number of flights, Jan-Jul 2020

anking of Top 10 City Pairs in India, by number of flights, Jan-Jul 2020
Source: Flightradar24 and ICF Analysis. *Data for July is till 11 July 2020.

Future growth will be driven primarily by VFR—visiting friends and relatives—and essential business travel. However, corporate travel is not expected to recover in the short-term as organizations become more effective at engaging through virtual collaborative platforms and more conscious of travel budgets. There will likely be an increased demand for private aviation among corporate and high net worth individuals in the near future due to social distancing, health safety and uncertain airline schedules.

Despite all the hygiene and safety efforts by the hospitality sector, tourism has witnessed a steep decline. Goa, a popular beach destination in India has seen over 90% drop in domestic flights compared to 2019 as travelers are concerned about safety and connectivity. As per the RBI survey conducted in April 2020, about 90% of the respondents suggest that the prospects of recovery in the next six months within the tourism sector appear bleak.

The need to adapt

Indian airlines are currently scrambling to survive with SpiceJet restructuring its fixed lease costs and IndiGo laying-off 10% of its workforce. Most airlines have sufficient short-term liquidity, but the long-term picture raises concerns. They will need to secure substantial additional funding to survive the crisis and be ready to ramp up operations when demand increases. Support from the government, monetary or otherwise, would also have a stabilizing effect on Indian carriers, as demonstrated in other countries.

From a medium-term perspective, key industry stakeholders must work together to boost passenger confidence. People are afraid to fly as is evident from the high no-show percentages of 10-15% per flight. While people may still postpone non-essential travel as India’s cases continue to rise, confidence-boosting measures will be critical to stimulate demand and restart travel in the future. An IATA commissioned global survey found that 40% of travelers indicated that they could wait six months or more after the containment of COVID-19 to return to travel.

ICF estimates that the Asia-Pacific region will recover in over 3.5 years, primarily driven by the large Chinese and Indian domestic markets, increased outbound travel and high GDP of China. Similar recovery trends are expected for India as well, supported by recoveries during past crises, the evolving LCC market and the growth potential from enhanced connectivity of Tier II/ III cities.

Indian aviation will emerge out of this pandemic as well, but it is a long road ahead that could shake up every aspect of flying as we know it.

1 “Five-One” policy allows mainland carriers to fly just one flight a week on one route to any country and foreign airlines to operate just one flight a week to a city in China.

Analysis by Pulkit Kapoor, Saloni Chokhani and Alvaro Ponte

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Featured image © Sandeep Pilania

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