Covid tsunami mars recovery: DGCA keeps capacity unchanged, extends fare caps

However, despite all this negativity circling around, there is still hope that there will be a recovery soon

Covid tsunami mars recovery: DGCA keeps capacity unchanged, extends fare caps
Planes at the Delhi airport. Image courtesy: Twitter/@DelhiAirport

After moving steadily towards full recovery for several months, the Indian aviation sector seems to have hit a rut again owing to a disastrous second wave of Covid-19 and the resultant fall in demand. This has compelled the Directorate General of Civil Aviation (DGCA) to keep domestic flight capacity fixed at 80% of the pre-Covid numbers and also extend fare capping on domestic flights till May 31 this year. 

The 80% cap will remain effective till 11.59 pm on May 31, the DGCA said in a circular.

Airlines were allowed to operate at only 33% capacity when the domestic sector was reopened on May 25 last year, after a two-month-long gap in the wake of a Covid-induced nationwide lockdown. However, airlines were operating at only 25%, according to a Business Today report. As domestic traffic started to pick up, the government raised the capacity limit to 45% by the end of June and to 60% in September. In November, airlines were allowed to hike capacity to 70%, and then on December 3, it was raised to 80%. 

Civil Aviation Minister Hardeep Singh Puri remained bullish about the recovery of Indian aviation and believed that a return to pre-Covid traffic numbers was just around the corner. Demand for air travel during the festive season added cheer to the sector, and India's aggressive vaccination drive held out a lot of hope. There were talks that the airlines may soon be allowed to run at full capacity. 

A view of the Delhi airport. Image courtesy: Twitter/@DelhiAirport

The airlines were, however, cautious about running at full capacity even though the government seemed much more optimistic about the sector regaining pre-Covid health. In fact, the airlines told the government that they would not be able to operate at full capacity without clarity on the return of traffic. They asked the government to delay such a move, implying that they would not be able to profitably deploy any more capacity.

The fare capping, which was introduced on May 21 last year, just before the resumption of domestic flights, had shown signs of receding, with the ministry of civil aviation (MoCA) raising the floor and ceiling of fare bands by 10-30% in February. The announcement was made a day after airlines operated 2,327 domestic departures — the highest since the restart of India’s domestic air traffic. It translated to 74.2% of the pre-Covid numbers. 

Also read: Why Indian carriers are not yet ready to fly at full pre-Covid capacity

Then in March, the lower fare limit on air tickets was raised again by 5%. The flight capacity was kept unchanged at 80% due to the situation emerging out of the surge in Covid-19 cases in the country.  

"Last few days have seen a decline in the number of air passengers largely due to restrictions and imposition of compulsory RT-PCR test by various states. Due to this, we have decided to retain the permissible limit to 80% of the schedule," Puri said. 

The government last year had placed limits on airfares through seven bands classified on the basis of flight duration. According to Puri, fixing floor and ceiling prices was an extraordinary measure designed to ensure that the airlines did not charge exorbitant prices in a situation of limited availability.

At a press conference in New Delhi on December 29, 2020, Puri had said that fare capping had benefited both the passengers and airlines. 

The fare capping was to be in force till March 31, 2021. Puri had informed the Parliament that further opening up of the domestic sector and relaxations in fare capping would be subject to the prevailing Covid-19 situation, the status of operations and passenger demand. He said on February 10 that the price bands would be done away with once flight services reach pre-Covid levels, replying to questions in Parliament.

The price of air tickets continued on an upward trajectory with the government increasing aviation security fees (ASF) on all domestic and international flights from April 1, 2021. 

Passengers at the Delhi airport. Image courtesy: Twitter/@DelhiAirport

The renewed Covid-19 crisis has come as a rude shock to the Indian aviation sector. India continued to set new global records of daily Covid-19 cases and added more than three lakh fresh cases for the seventh straight day on April 28, with 3,60,960 cases in the past 24 hours. India’s total active caseload reached 29,78,709, comprising 16.55% of the country's total positive cases. A net incline of 96,505 cases was recorded in the total active caseload in the past 24 hours. To add to the woes, there were 3,293 deaths in the past 24 hours. 

This dismal situation has necessitated several states to impose restrictions on flyers from other states, and also impose lockdowns and curfews. It has spooked away air travellers to a large extent. Consequently, travel demand has started falling. 

"Currently, around one-third of total states in India have imposed further lockdowns/restrictions -- but operations in the sector have not been curbed. We keep our assumptions unchanged for now, with estimates of traffic recovering to pre-Covid levels by end of 3QFY22E," said a report prepared by Motilal Oswal on the aviation sector, IANS reported. According to the financial services company, there would be further delays to recovery to pre-Covid levels. 

Also read: Puri uses 'pawri' humour to caution about aviation recovery, lauds steady progress

Airlines in India had, in fact, approached the government to lower capacity to 50-60%, or the level that they operated at during the early part of reopening the domestic sector last year. The airlines have also asked the government for financial help to tide over the crisis. Unlike the US, for example, the Indian government has yet to provide any financial assistance to the aviation sector that has been one of the worst hit by the pandemic.

The renewed Covid surge in India has scared away passengers. Image courtesy: Twitter/@DelhiAirport 

India's daily domestic passenger traffic fell below 2,00,000 for the first time since November 2020 and bookings were down by 50%, according to a News18 report in April. Some airlines were also reported to be bleeding, and credit rating agency CRISIL estimated that this slowdown could lead to net losses of Rs 9,500-10,000 crore this fiscal. Buoyed by the robust recovery, some of the airlines like Vistara and SpiceJet had started to roll back salary cuts for their staff, but the Covid surge has dampened the spirits.

A MoCA official said that flight occupancy had gone down to 60% from 70% in the first week of March 2021, according to a Business Standard report in April. Frontline global aviation lobby group International Air Transport Association (IATA) had estimated that airlines need to fly at a minimum of 80% occupancy to be profitable. 

"The rising number of cases has certainly deferred a recovery. But with increasing vaccination drive, I expect a total recovery in six to eight months," the Business Standard quoted Director General of Civil Aviation (DGCA) Arun Kumar as saying.

Forward bookings have taken a major hit too. According to IndiGo CEO Ronojoy Dutta predictability of demand is based on passenger sentiment. "It really is very news flow dependent. If the market is quiet, there is no big news coming, then the revenue is strong," Dutta said. 

Now that people are anxious about contracting the virus in the second wave of attack, which is threatening to undo all the progress made over the past year, air travel demand is bound to fall. 

This sharply contrasts with the sentiment that was improving as India was showing signs of having found a semblance of control over the virus, especially with the advent of homemade vaccines. Indeed, leisure travel, considered completely avoidable in times of crises, was beginning to find a way back, especially during the festive season, and according to an IANS report, bookings on online travel platform Goibibo showed a 40% rise in daily check-ins for the Diwali season this year when compared to the average bookings in October. Airlines came up with lucrative deals to woo passengers, and also started adding new routes. 

However, mutant forms found in many countries and an Indian version that is considered to be highly infectious have made people rethink their travel plans. 

The Covid surge has severely dented recovery in the Indian aviation sector. Image courtesy: Twitter/@DelhiAirport

The changing pattern of the virus had messed up the plans of the airlines in terms of estimating demand for tickets and calculating the best prices. According to an Air India network planner, the company was depending on historical data from 2019 for the summer schedule, assuming things to be back to normal, the Business Standard reported. But the new situation means that airlines are now flying in the dark. As a result of this uncertainty, market leader IndiGo has been making pilot schedules for 15 days instead of the usual full month. The predictability of booking helps to prepare a robust schedule, according to an IndiGo executive.  

The downturn has also forced carriers to review plans for aircraft delivery and defer fresh induction of aircraft. SpiceJet and AirAsia India were reportedly supposed to induct eight aircraft together by the end of May. Those plans have now been put on the backburner as airlines are not sure how passenger demand would look like in the near term. 

Also read: Buoyed by Covid vaccine rollout, airlines offer massive discounts to woo back flyers

Domestic air travel had been rising every month since the reopening of the skies last year, but in the week ended April 3, fewer people took to the skies than the week before, Live Mint reported. It was the second straight weekly fall in air passenger numbers. 

Rating agency ICRA estimated domestic air passenger traffic in India in March 2021 to be about 7.7 million to 7.8 million, which is nearly the same as that in the year-ago period, despite muted numbers in March 2020 due to the Covid-induced lockdown. "Passenger traffic in March 2021 witnessed a marginal sequential decline of about 1% as compared to February 2021. The airlines’ capacity for March 2021 was around 2% higher than their March 2020 capacity (about 71,300 departures in March 2021, against 69,910 departures in March 2020)," the ICRA report said.

Apart from the alarmingly increasing Covid cases in the country, airlines have also been at the receiving end of the rupee sliding against the US dollar, which has increased the cost of operations, Live Mint quoted aviation expert Ameya Joshi as saying. 

India's continued ban on regular international flights, and several countries prohibiting flights from India in the wake of the Covid storm raging in India, the prospects of the international sector look dull too. 

However, despite all the negativity circling around, there is hope that the setback in the aviation sector in terms of travel curbs and so on are not as pronounced as that last year and that there will be a recovery soon. 

"We have had a setback in the past few days if not weeks considering the rising number of cases in the country have seen a decline. However, we do recognise that air travel is very safe, it is something that we are very confident about. Air travel is still permitted and we are thankful to the ministry and the govt for this. We saw growth through January and February and we were looking at going back to pre-Covid numbers this summer, but it may not materialise because of the second wave,” News18 quoted Vinod Kannan, Chief Commercial Officer, Vistara, as saying.