Aviation industry revival: Clear skies ahead as airlines remain cautiously optimistic

Travel, tourism and hospitality industries were the most hit by the global pandemic. And for two years, all operations had come to a grinding halt. Now, with the Covid cases on the decline and restrictions being lifted, domestic and international travel has commenced in all earnest. Already crowds are seen at major airports as business, leisure and education-related travel resumes. The onset of summer vacations will also see air travel picking up as holidaying is high on priority after people remained mostly confined to their homes for two years.

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According to data released recently by DGCA, domestic air passenger traffic in the January-March period surged to 24.8 million, marking a 6.1% growth compared to the corresponding period last year. India is currently the ninth largest aviation market in the world, with a passenger throughput of 344 million as of 2019. More than 85 international airlines operate to India and five Indian carriers connect over 40 countries. This sector contributes 2.4 per cent to the country’s GDP.

India is considered to be one of the toughest aviation markets in the world, due to high fuel prices, overcapacity and intense price competition. Even before the pandemic struck, there was trouble brewing. National carrier Air India had hit huge turbulence, before the Tata group came to the rescue. Every five years one airline in India is being grounded, the last being Jet Airways, which had to suspend its operations in April 2019 due to a liquidity crisis. According to CRISIL, the airline industry has an accumulated loss of over Rs 1-1.3 crore over three years.

The major costs that are associated with the aviation industry include the airline leases, maintenance, airport and fuels costs. Two-third of the expenses are fixed. The fuel costs are normally hedged by some airlines and when prices rise, at times they benefit the airline. In the post-Covid scenario, there seems to be a steady increase in revenues. However, airlines are operating on budgets when it comes to the promotional expenses. While a sizable amount was spent on promotions in the year 2020, in 2021 that was trimmed heavily and only less than one-fourth of the usual budget was spent on promotions.

As markets return to normalcy, the aviation industry is looking for a fast recovery. Already, Jet Airways is planning to be back in the skies with a new management and having obtained all clearances to fly. Akasa is another ULCC air career that will become operational soon. The airline is being launched by stock market investor Rakesh Jhunjhunwala, who will hold a 40% stake in the airline. Today, there are 7 frontline airlines and some regional airlines operating in India, with Indigo leading the race with over 50% market share.

The Government is also encouraging and going all out to encourage international air travel. In the pre-Covid times in 2019, India had around 18 million international tourist arrivals, which translated into $30 billion of foreign exchange. However, in 2020, approximately 6.33 million international tourists and non-resident Indians arrived in India, down from about 18 million in 2019. In 2020, the global pandemic heavily affected the tourism sector, which had a great bearing on the aviation sector.

However, a study by CareEdge projects that domestic air travel traffic is expected to reach the pre-Covid levels by June 2022 on account of the waning impact of the Omicron wave, significant vaccination coverage and the pent-up demand from the leisure and travel segment, which was at its lowest ebb for the last two years. CareEdge expects a V-shape recovery in passenger traffic in FY2023, with nearly 70% growth over FY2022 passenger traffic. Assuming there is no recurrence of the pandemic, the passenger traffic during FY2023 is expected to recover to 93% of the pre-Covid level traffic. International traffic is expected to revive to pre-Covid levels by early FY2024 after the resumption of international flights to full capacity from March 27, CareEdge said.

Overall, travel sentiment is on the rise and the numbers are expected to look better in the next 3 months. Industry experts also feel that there is room for more airlines to enter the market as only 4% of the population travels by air. It now needs to be observed as to what kind of strategy the airlines will chalk out to retain and grow their market share. Managing the travellers’ sentiments will be a challenge and hence, they have to look at a whole lot of differentiating factors, starting from hygiene to on-time performance, and competitive fares to woo customers. Customer complaints and grievances should be given top priority to retain loyal customers and judicial marketing promotions should be planned to woo more new customers.

Recently, Indigo faced a lot of flak after refusing to board a child with special needs. And the way it handled the entire episode came in for severe criticism from all quarters, so much so that the DGCA fined Indigo Rs 5 lakh after the airline was found to be at fault.

Faced with a tough and highly competitive market, airlines have an uphill task as they move ahead with their reboot and bounce back strategies.

Regardless of the disruptions, the resilience exhibited by the airlines industry during the pandemic times has been exemplary, with all key stakeholders working collectively to realign processes and pacing up digital transformation, in line with evolving customer expectations. Sharing his views, Deepak Rajawat, Chief Commercial Officer, Vistara (TATA SIA Pvt. Ltd.), said, “At Vistara, our strategy is focused on ‘densifying’ our domestic network while expanding our international footprint. All our efforts remain directed towards growth, which has led to an increase in our market share as well. We recently announced addition of Coimbatore in our domestic network starting May 20, 2022 and introduced several new routes like Mumbai-Srinagar, Bengaluru-Guwahati, Bengaluru-Indore, etc.

He affirmed, “We remain committed in offering a premium flying experience to our customers with a host of service offerings like the purple ticket gift card, travel insurance, in-flight WiFi and enhanced inflight dining experience. We are consistently working to further enrich the range of our services to up the game. Vistara maintains the highest safety and hygiene standards to build on customer confidence.”

Vistara is also actively engaging its audience with a range of interactive campaigns like the recently launched #ThSoundtrackOfTravel, which aims at rekindling the joy of travelling and has received an overwhelming response garnering more than 2.5 million views on YouTube.

Speaking about the recovery seen in the post-pandemic period, Willy Boulter, Chief Commercial Officer, Indigo, said, “After nearly two years, on April 17, 2022, over 4 lakh passengers took to the skies within the country, demonstrating a tenacious recovery in the aviation sector. We have been spreading our wings in the country with expansion to new domestic destinations throughout the last and this year. Now, the opening of scheduled commercial international operations provides us the opportunity to recommence operations to pre-Covid destinations in our network to offer great holidays this summer as well as add new stations going forward. We will stay true to our promise of affordable fares, hassle-free service and on-time performance across a wide network.”

He further noted that India is continuing to develop as one of the world’s largest civil aviation markets, as it ramps up capabilities and capacity in infrastructure and services. “The moment the third wave subsided and the traffic started picking up, rising oil prices due to the Russia-Ukraine conflict have impacted margins for airlines deeply. However, with the opening of international operations last month and focus on operationalisation of 1,000 new air routes under UDAN-RCS by 2026, the industry will witness recovery in passenger traffic this year. Some estimates also indicate that June 2022 might be the first month to witness pre-Covid passenger traffic. We hope to continue the growth in passenger traffic and stabilisation of the business environment for travel and aviation over the next few months.”

Deepak Rajawat, too, ended on an optimistic note as he stated that the industry is in revival mode, and “we remain cautiously optimistic about the sector this year”.