Tag: aviation

Impact of Covid-19 on the Corporate Sector in India



The impact of coronavirus pandemic on India has been largely disruptive in terms of economic activity as well as a loss of human lives. Almost all the sectors have been adversely affected as domestic demand and exports sharply plummeted with some notable exceptions where high growth was observed. An attempt is made to analyze the impact and possible solutions for some key sectors.


Food & Agriculture

Since agriculture is the backbone of the country and a part of the government announced essential category, the impact is likely to be low on both primary agricultural production and usage of agro-inputs. Several state governments have already allowed free movement of fruits, vegetables, milk etc. Online food grocery platforms are heavily impacted due to unclear restrictions on movements and stoppage of logistics vehicles. RBI and Finance Minister announced measures will help the industry and the employees in the short term. Insulating the rural food production areas in the coming weeks will hold a great answer to the macro impact of COVID-19 on Indian food sector as well as larger economy.


Aviation & Tourism

The contribution of the Aviation Sector and Tourism to our GDP stands at about 2.4% and 9.2% respectively. The Tourism sector served approximately 43 million people in FY 18-19. Aviation and Tourism were the first industries that were hit significantly by the pandemic. The common consensus seems to be that COVID will hit these industries harder than 9/11 and the Financial Crisis of 2008. These two industries have been dealing with severe cash flow issues since the start of the pandemic and are staring at a potential 38 million lay-offs, which translates to 70 per cent of the total workforce. The impact is going to fall on both, White and Blue collar jobs. According to IATO estimates, these industries may incur losses of about 85 billion Rupees due to travel restrictions. The Pandemic has also brought about a wave of innovation in the fields of contactless boarding and travel technologies.



Telecom

There has been a significant amount of changes in the telecom sector of India even before the Covid-19 due to brief price wars between the service providers. Most essential services and sectors have continued to run during the pandemic thanks to the implementation of the ‘work from home’ due to restrictions. With over 1 billion connections as of 2019, the telecom sector contributes about 6.5 per cent of GDP and employs almost 4 million people. Increased broadband usage had a direct impact and resulted in pressure on the network. Demand has been increased by about 10%. However, the Telco’s are bracing for a sharp drop in adding new subscribers. As a policy recommendation, the government can aid the sector by relaxing the regulatory compliances and provide moratorium for spectrum dues, which can be used for network expansions by the companies.


Pharmaceuticals

The pharmaceutical industry has been on the rise since the start of the Covid-19 pandemic, especially in India, the largest producer of generic drugs globally. With a market size of $55 billion during the beginning of 2020, it has been surging in India, exporting Hydroxychloroquine to the world, esp. to the US, UK, Canada, and the Middle-East.

There has been a recent rise in the prices of raw materials imported from China due to the pandemic. Generic drugs are the most impacted due to heavy reliance on imports, disrupted supply-chain, and labour unavailability in the industry, caused by social distancing. Simultaneously, the pharmaceutical industry is struggling because of the government-imposed bans on the export of critical drugs, equipment, and PPE kits to ensure sufficient quantities for the country. The increasing demand for these drugs, coupled with hindered accessibility is making things harder. Easing the financial stress on the pharmaceutical companies, tax-relaxations, and addressing the labour force shortage could be the differentiating factors in such a desperate time.


Oil and Gas

The Indian Oil & Gas industry is quite significant in the global context – it is the third-largest energy consumer only behind USA and Chine and contributes to 5.2% of the global oil demand. The complete lockdown across the country slowed down the demand of transport fuels (accounting for 2/3rd demand in oil & gas sector) as auto & industrial manufacturing declined and goods & passenger movement (both bulk & personal) fell. Though the crude prices dipped in this period, the government increased the excise and special excise duty to make up for the revenue loss, additionally, road cess was raised too. As a policy recommendation, the government may think of passing on the benefits of decreased crude prices to end consumers at retail outlets to stimulate demand.


Beyond Covid: The new normal

In view of the scale of disruption caused by the pandemic, it is evident that the current downturn is fundamentally different from recessions. The sudden shrinkage in demand & increased unemployment is going to alter the business landscape. Adopting new principles like ‘shift towards localization, cash conservation, supply chain resilience and innovation’ will help businesses in treading a new path in this uncertain environment.

Coronavirus (COVID-19), a virus that grew stealthily has become one of the deadliest viruses that are killing people worldwide. This virus took birth in Wuhan city of China and since then have traveled to more than 160 countries. The World Health Organization (WHO) has declared Coronavirus as a pandemic. It has become a mass scare and is leading to the deaths of thousands of people in numerous countries including China, Italy, Iran, Spain, the US, and many more. In India, this pandemic started on 30 January 2020 by affecting an individual who had a travel history from Wuhan, China.


The world economy is seeing its greatest fall ever. Coronavirus has largely impacted the growth of almost every country and is responsible for the slump in GDP worldwide. Like other countries, India is also impacted by this virus but not largely. Almost every industry sector has seen a fall in their sales and revenue. India’s GDP growth has fallen to 4.7% in the third quarter of 2020.


Inflation and Affected Industry:

China is one of the largest exporters of many raw materials to India. Shutting down of factories has damaged the supply chain resulting in a drastic surge in the prices of raw materials. Some of the other products that have seen a rise in their prices are gold, masks, sanitizers, smartphones, medicines, consumer durables, etc. The aviation sector and automobile companies are the hardest hit among the rest. With no airplane landings or take-offs globally and restricted travel has brought the aviation and travel industry to a halt.



Slump in Share market:
Share markets that include Sensex and Nifty are on nose dive since the occurrence of this pandemic (COVID-19). Sensex has declined close to 8000 points in a month. As of 12 March 2020, share market investors have lost approximately Rs. 33 lakh crore rupees in a month. This could be the beginning of a recession that the Indian market will never want to witness. Investors are advised to stay safe and invested in this virus-infected stock market. Few industries that can benefit from novel coronavirus during the time of the market crash are pharmaceuticals, healthcare, and Fast Moving Consumer Goods (FMCG).




Cash flow Issue:
Due to this outbreak, almost 80% of Indian companies have witnessed cash flow difficulty and over 50% of companies are facing operations issues. As per the Federation of Indian Chambers of Commerce and Industry (FICCI), 53% of companies are impacted by COVID-19. Slow economic activity is resulting in cash flow problems eventually impacting repayments, interest, taxes, etc.


Coronavirus (COVID-19), a virus that grew stealthily has become one of the deadliest viruses that are killing people worldwide. This virus took birth in Wuhan city of China and since then have traveled to more than 160 countries. The World Health Organization (WHO) has declared Coronavirus as a pandemic. It has become a mass scare and is leading to the deaths of thousands of people in numerous countries including China, Italy, Iran, Spain, the US, and many more. In India, this pandemic started on 30 January 2020 by affecting an individual who had a travel history from Wuhan, China.


The world economy is seeing its greatest fall ever. Coronavirus has largely impacted the growth of almost every country and is responsible for the slump in GDP worldwide. Like other countries, India is also impacted by this virus but not largely. Almost every industry sector has seen a fall in their sales and revenue. India’s GDP growth has fallen to 4.7% in the third quarter of 2020.


Efforts from CII and Govt. of India:
Confederation of Indian Industry (CII) has suggested the RBI reduce repo rate up to 50 basis points and also asked for a reduction of 50 basis points on the cash reserve ratio. The government is planning to set up an amount to support MSMEs to overcome the crisis during this phase of shut down, cash flow difficulty, and working capital issues.

Written by: Ananya Kaushal

IMPACT OF COVID-19 ON AIRLINES

India’s civil aviation sector is in severe difficulty once more, having encountered an air pocket just as it appeared to be ready to take off after a tumultuous year.

Things began to improve, and pre-pandemic levels of business appeared to be on the horizon, but just as the government announced that it would consider allowing airlines to operate at full capacity if passenger numbers exceeded 3.5 lakh per day three times in a month, the number began to decline.

As the second wave of the pandemic raced across the country, notably in key air traffic hubs such as Mumbai, Delhi, and Bengaluru, the passenger count never exceeded 3 lakh in March, and in April, the number began to decline even further, in tandem with escalating COVID-19 cases.

The number of passengers dropped from 2.75 lakh in early April to slightly over 1 lakh by the month’s conclusion. According to ICF’s data analysis, the number of active COVID-19 instances in India increased by 394 percent while traffic decreased by half. Airlines were further harmed because not all flights were cancelled at the same time. Even while traffic was dropping at a considerably quicker rate, the daily flight count fell only 35%, putting further strain on the carriers’ budget.

Who shrunk the most while who held up?

GoAir, which is preparing for an IPO, and AirAsia India, which is controlled by Tata-AirAsia Bhd, were the first to react to the shifting market. From 201 at the beginning of the month, GoAir’s departures dropped by 62% to 77 on April 30. AirAsia’s headcount has dropped from 161 to 55 in the last month.

IndiGo, India’s largest carrier in terms of fleet and domestic market share, shrank by only 28% on April 30, flying 883 flights. According to ICF data, the airlines concluded the month with 31,516 departures, which was more than the entire competition combined, or 52 percent of total domestic departures in the country in April.

Air India, the country’s national carrier, declined the least among major airlines, cutting its operations by only 11%, while Alliance Air, a subsidiary, cut a fourth of its operations by the end of April. Trujet, situated in Hyderabad, has also shrunk by 11%. Trujet and Alliance Air both have a significant presence in RCS-UDAN, and viability gap funding would help to mitigate the effects.

Between the first and last days of April, SpiceJet and Vistara both shrank by 47 percent and 46 percent, respectively.

Where was the impact felt?

While Mumbai-Delhi remained the most popular flight route in April, with 1656 departures, it was also the most impacted, with daily flights dropping from 77 on the first day of the month to only 34 by the end of the month. Flights from Delhi to Bengaluru, Srinagar, Kolkata, and Patna rounded out the top five routes.

As standards for RT-PCR=negative findings were reinstated across states, leisure routes were the hardest hurt. The destinations with the greatest reduction in leisure tourism were Port Blair, Goa, and Srinagar.

With only 50 flights on April 30, Goa saw a 68 percent decline in traffic. On April 1, there were 156 flights to Goa from all throughout the country. A few sectors vanished entirely from the airmap. Flights to Goa from Hubli, Jaipur, Lucknow, Nagpur, Kannur, Amritsar, Pune, and Ahmedabad were all cancelled, with the most significant impact coming from Delhi, where only seven flights were available instead of the usual 40.

Port Blair, which has long maintained a tight inbound visitor policy, reported a 56 percent drop in traffic. Direct flights from Mumbai and Delhi were cancelled, and the most popular route from Chennai saw over half of its flights cancelled.

Tail Note

May has been much more difficult than April. For the first time since August 2020, passenger traffic fell below 1 lakh passengers per day. The number of flights has also gone below 1,000. This represents less than 30% of departures and fewer than 15% of traffic prior to COVID-19. The government of India opened up air traffic with a capacity ceiling of 33%, and a year later, we are back to where we were a year ago!

“With domestic demand decreased to a fourth of pre-pandemic levels, it is difficult for airlines to locate routes that will allow them to satisfy the variable cost of operations,” says Piyush Bansal, Operations Lead and ISTAT Certified Appraiser at ICF. Long-term survival necessitates continued reductions in fixed and semi-fixed costs, which is difficult but not impossible.

With IndiGo’s board of directors approving QIP fundraising and GoAir filing a DRHP, the two airlines have devised a strategy to raise extra capital. While AirAsia India has reduced its service, Vistara is growing! TATA’s assistance for each of these airlines will be determined over time, but it continues to cast doubt on SpiceJet’s ability to exist and recover from the crisis.