Aviation is amongst the worst-hit industries in Covid-19: what might change?
– By Akhilesh Tilotia and Sunil Bhaskaran
Before Covid-19 pandemic hit India and its aviation industry, airline traffic had been growing smartly for last many years: indeed, the industry had celebrated fifty consecutive months of double-digit growth in December 2018. Airlines in India had started transporting more people annually (~140 million) than the AC coaches of Indian Railways (~130 million) over longer distances and at comparable or lower prices. The UDAN scheme helped move the number of India’s operational airports to more than 100.
When India hosted its first Global Aviation Summit in January 2019, the local industry was expected to continue growing smartly to a target of a billion trips a year in the forecast-able future. Given these expectations, tens of billions of dollars of aircraft were expected to come to India – plans for setting up a lease finance industry in GIFT City were charted. India embarked on building new greenfield airports and privatizing its brownfield airports and national flag carrier.
Like everywhere else in the world, Covid-19 crashed the Indian aviation party: air travel was suspended or severely curtailed, airports closed, aircraft parked, and passengers deferred travel. As India has headed into its un-lockdowns, air travel is reviving itself again. We explore a few aspects of what the future ahead might look. We look at (1) how the passenger experience could change, (2) how the business models could evolve, and (3) what new ideas could find root.
Passengers will settle into a new routine
The security experience of passengers underwent a massive change post 9/11. Not only did airlines and airports have to convince themselves that there was no terror threat, passengers needed a reassurance that they were travelling safely. Over time, the systems stabilized, evolved and became part of the normal routine of air travel. A similar change will come due to Covid-19.
India has led the way in creating practical, working rules on how to address passenger concerns on the safety of their health. These measures include the government ensuring that new air travel protocols were finalized quickly through collaboration with all stakeholders (airports, airlines, ground handlers, security services, etc.) who worked closely with the ministry and regulators (DGCA/BCAS).
Technology has been deployed to address issues at scale: Arogya Setu app to help contact tracing, move towards 100% online web check in, contactless baggage tag, thermal checks, no stamping of boarding passes and move to e-boarding pass soon, etc. Safe health norms like mandatory PPE kits and face masks, face shield and sanitizer sachets to all passengers, social distancing norms not only at airports but on-boarding and alighting norms, stopping food service on-board, hi-tech aircraft in-cabin air quality with HEPA filters with the ability to remove 99.99% of Covid-19 virus and complete air change every 3 minutes in the cabin.
The above measures show significant positive feedback and confidence among passengers who have flown after May 25. The overall NPS measures (at Air Asia) and also passenger feedback at some airports show extremely high levels of satisfaction.
Business models will change
The key reasons for air travel are business, visiting friends and relatives (VFR), education, and tourism and leisure. The key drivers for all these are changing as countries reconsider visas and go local, video calls become more life-like, the new skills economy rips open the four-year university course into multiple courses pieced together from across colleges, and travel becomes more local.
India has a large domestic air travel at 144 mn in 2019 and is expected to come back to normalcy in 9-12 months Airlines in India, pre-Covid, were largely dependent on domestic travel. The share of traffic for Indian airlines in international travel of Indians was low. This should aid in the turnaround of the industry as the country opens up internally even as global borders remain closed till “travel bubbles/green lanes” stabilize.
Indian airlines have perfected the business model to carry passengers at amongst the lowest yields in the world in spite of some of the highest taxes on aviation fuel. This business model was driven, apart from a strong focus on opex, by bulk leasing and running at high plane load factors (PLFs). With an oversupply of planes globally and a world awash with capital at low or negative interest rates, lease rates may settle lower. Recreating the network to connect 100+ airports could take time: how many pairs of connections remain viable from a PLF perspective can only be assessed over time. Lower taxes and airport charges can help make many more routes viable.
Bring in fresh thinking
The tectonic shift in the aviation industry allows reimagining the rules from practically a clean slate across all elements like airports, leasing, cargo and localization.
Till global aviation traffic comes back to pre-Covid levels, key metro airports may not run at full capacity. This is an opportunity to reimagine their role as international hubs, especially as new second, greenfield airports come near them. India should actively seek to promote these airports as hubs for Indians to traverse the world, as and when it opens up. Developing an airport as a hub requires a strong global airline making it its base.
Rebuilding airlines will require significant financial restructuring: large dollops of equity infusion will be required. This is also a good time for India to kick-start the local aircraft leasing industry with help from professionals and firms who may now be looking for new opportunities.
The recent burst of reforms in Indian agriculture can reshape the market by bringing in large agri-processing companies. Perishables transport to processing plants and to consumers will require airlines to offer specialized cargo services. A financially viable air cargo policy can help create a dependable source of revenues while the passengers regain confidence to travel.
Aviation is an industry that, if localized, can help feed an ecosystem that will make India self- sufficient in fields as varied as aerospace to defence.
India should not let this crisis go waste.
Tilotia is Head, Strategy and New Initiatives, Axis Bank. Bhaskaran is CEO, Air Asia India. Views are personal.
Originally published in The Financial Express.