Webinar :Register now for webinar on 'Trade BankNifty in just 15 minutes a day' - By Asmita Patel
Last Updated : Mar 12, 2020 07:37 PM IST | Source: Moneycontrol.com

Coronavirus impact: Airlines now have another problem after international travel restrictions

The airlines are left with unused aircraft. And, it is a double whammy of sorts.

With key international markets closing doors on fliers, Indian airlines are staring at a new challenge amidst the spread of coronavirus: unused aircraft.

It is a double whammy of sorts. Apart from loss of business, airlines have to continue paying rentals and parking charges on these aircraft.

While airlines, including Air India and IndiGo, have already suspended flights to China, where the virus first broke out, operations to key markets including Singapore and Thailand have been truncated.

Close

Added to the list are Qatar and Kuwait, which have barred fliers from India in an attempt to limit the spread of the virus.

COVID-19 Vaccine

Frequently Asked Questions

View more
How does a vaccine work?

A vaccine works by mimicking a natural infection. A vaccine not only induces immune response to protect people from any future COVID-19 infection, but also helps quickly build herd immunity to put an end to the pandemic. Herd immunity occurs when a sufficient percentage of a population becomes immune to a disease, making the spread of disease from person to person unlikely. The good news is that SARS-CoV-2 virus has been fairly stable, which increases the viability of a vaccine.

How many types of vaccines are there?

There are broadly four types of vaccine — one, a vaccine based on the whole virus (this could be either inactivated, or an attenuated [weakened] virus vaccine); two, a non-replicating viral vector vaccine that uses a benign virus as vector that carries the antigen of SARS-CoV; three, nucleic-acid vaccines that have genetic material like DNA and RNA of antigens like spike protein given to a person, helping human cells decode genetic material and produce the vaccine; and four, protein subunit vaccine wherein the recombinant proteins of SARS-COV-2 along with an adjuvant (booster) is given as a vaccine.

What does it take to develop a vaccine of this kind?

Vaccine development is a long, complex process. Unlike drugs that are given to people with a diseased, vaccines are given to healthy people and also vulnerable sections such as children, pregnant women and the elderly. So rigorous tests are compulsory. History says that the fastest time it took to develop a vaccine is five years, but it usually takes double or sometimes triple that time.

View more
Show

While the loss of operations in China was not a big dent, all the other markets - Singapore, Thailand and Qatar - are among the most popular routes for fliers from India. For instance, Doha is among the busiest routes and over a million passengers fly between the Qatar capital and Indian cities in a quarter.

All this means that airlines, which also includes SpiceJet, Vistara and GoAir, have additional aircraft to deploy on other routes.

What are the options?

One of the most obvious things is to deploy these aircraft on domestic routes. After all, the Indian domestic market is among the largest in the world and is the fastest growing.

"The capacity curtailed on international flights will need to be deployed on domestic flights,” says Shakti Lumba, an aviation professional and former Executive Director Airline Operations (Alliance Air) and Vice President Ops (IndiGo).

Domestic fliers are already seeing aircraft, which usually fly on international routes, being used on the domestic circuit.

Unfortunately though, domestic travel too has taken a hit. The trend has become clearer after fresh cases of those infected with coronavirus started seeing a daily increase in India. The number of confirmed cases has crossed the 40-mark in India.

The occupancy in flights has dropped by 15 percent, Business Standard reported. Fares have plummeted on routes connecting metros. Now one can fly from Chennai to Bengaluru for just Rs 1,000.

There are other options too.

"Airlines need to decide if they want to keep the aircraft on ground using them less, or if they foresee a long term issue, then return them to the leasing company. All depends on the contracts," says Amit Singh, an industry veteran and Fellow of London's Royal Aeronautical Society.

"During the last economic downturn in 2008, Spicejet and GoAir decided to return aircraft, but IndiGo decided to go on an accelerated growth bringing in more aircraft and took over slots at the airports," he adds.

As of now, it is not clear if the airlines will opt to return the aircraft, or if the lease contracts have such a clause.

At the same time, companies are contemplating if they could use the force majeure clause to avoid the lease agreement, says Nitin Sarin, Managing Partner of Sarin & Co, which specialises in aviation law.

Or, he adds, "the lessor and lessee can always enter into an arrangement in these circumstances to mitigate the lessees losses."

Airlines are sure to negotiate with their lessors, especially because parking an aircraft can be an expensive affair in itself. While parking charges vary according to the aircraft type and airport, the charges are high. For instance, a Boeing 777 costs about Rs 1 lakh a day to be parked in Delhi airport.

The bottomline is this. "The fleet utilisation will go down. Total costs will increase inspite of oil prices going down. Lease/interest payments will become difficult to meet. Cash strapped airlines will most likely face closure,” adds Lumba.

Hope not.
First Published on Mar 11, 2020 11:30 am
Sections