From UPSC perspective, the following things are important :
Prelims level : IATA
Mains level : Paper 3- Impact of corona pandemic on aviation industry.
Primarily the major driver of connectivity, the aviation industry is one of the worst affected industries in the corona crisis. It is in the need of relief package from the government. The article discusses the contribution of the industry in the economy. Finer details of the operation of the industry are also explained. In the end, details of the measures expected from the government relief package are discussed.
Significance of aviation industry in Indian economy
- The air transport industry, including airlines and its supply chain, is estimated to contribute directly or indirectly $72 billion of GDP to India.
- India being the fastest-growing domestic market in the world at 18.6 per cent per annum, followed by China at 11.6 per cent. (IATA report)
Impact of Covid-19 crisis
- The same IATA report says that in India, 29.32 lakh jobs in the aviation sector are at risk.
- Airlines in the Asia Pacific region may see the largest revenue drop.
- The air transport business along with its supply chain may see a near wipeout of approximately 40 per cent of business volume in the current financial year.
- The two-month-long shutdown has eroded the capital of most airlines.
- The cost of maintaining Aircraft on Ground (AoG) is extremely high, and with nil revenues, this is a sure-shot recipe for disaster.
Economics of running airlines profitably
- You should be flying your entire fleet, with no Aircraft on Ground. (Airbus A-320 or similar)
- Every plane must fly for 11 hours a day.
- Which will be possible only if you have a turnaround time of 30-45 minutes.
- And you have an average Passenger Load Factor (PLF) of around 65 to 67 per cent.
Now, consider this:
- Forty per cent of your fleet is grounded.
- Due to social distancing and other hygiene protocols, an aircraft can fly only eight hours because of the elongated turnaround time.
- One-third seats are to be kept vacant.
- And finally, you are flying with a reduced 50 per cent PLF.
- The break-even ticket price in such a scenario would be astronomical.
Demand for financial relief package
- The Asia Pacific division of the IATA has corresponded with the Indian government, citing the case of some of the other nations which have announced financial relief packages for the sector.
- As per reports, countries like Australia, New Zealand and Singapore, have announced relief packages for airlines.
- FICCI has urged the government to immediately provide direct cash support to Indian carriers whereby the airlines can meet their fixed costs.
What relief measures could be provided?
- First, a moratorium for the next 12 months on all interest on the principal amount of loans without limitations of size or turnover through a direction to all financial institutions.
- Second, VAT on ATF by state governments, which ranges from 0-30 per cent, should be rationalised with immediate effect to a maximum of 4 per cent across all states for the next six months.
- Third, aviation turbine fuel needs to be brought under the ambit of 12 per cent GST, with full input tax credit on all goods and services.
- Fourth, a waiver for private airport operators space rentals and AAI, royalty, landing, parking, route navigation and route terminal changes for the next one year.
- This should be done not only for the airlines but all aviation-related businesses.
- Fifth, all airlines and aviation-related business must be treated as priority sector lending.
- Sixth, no loans to airlines and other aviation-related business should be classified as NPAs and no collateral enforced or enhanced during this moratorium.
- Finally, support the airlines and other-aviation related companies by paying or taking care of salaries of the employees for a period of six months.
- This will allow employee retention and is being done in a lot of countries.
A question was asked by the UPSC in 2017 related to the development of Airports in India under PPP model. This shows the importance of the aviation sector from UPSC point of view. Consider the question asked by the UPSC “Examine the development of Airports in India through joint ventures under PPP model. What are the challenges faced by the authorities in this regard?”
Recovery from this crisis is going to be a long and uphill task. It will take effort, planning and, most importantly, coordination between the aviation industry and the government.
Back2Basic: IATA-International Air Transport Association
- IATA was founded in Havana, Cuba, on 19 April 1945.
- It is the prime vehicle for inter-airline cooperation in promoting safe, reliable, secure and economical air services – for the benefit of the world’s consumers.
- The international scheduled air transport industry is more than 100 times larger than it was in 1945.
- Few industries can match the dynamism of that growth, which would have been much less spectacular without the standards, practices and procedures developed within IATA.