Following a tumultuous few weeks in air travel, the Indian government is stepping in rescue the aviation sector. The government is mulling up to $1.6bn in relief to airlines, coming mainly in the form of deferred tax payments.
Increasing pressure on airlines
The last few weeks have forced Indian carriers to take drastic measures to ensure continued operations. GoAir and Vistara have suspended all international flights, while others have substantially scaled back operations.
The news comes as bookings have crashed and airlines struggle to fill seats on any flights. In addition to this, airlines have begun grounding their fleets as more routes are cut. The industry is expecting a drop in domestic demand as well, forcing more airlines to ground aircraft and cut costs.
The news of a government bailout comes as the number of confirmed coronavirus cases rises every day, with the number fast approaching 200. The virus has had an incredible impact on the aviation industry, with India banning arrivals from scores of countries in the last week. Fares have crashed as airlines desperately waive rescheduling fees in a bid to attract customers.
What is the government offering
While details on the government bailout are slim, since it is yet to be officially announced, sources say the government will temporarily suspend a myriad of taxes levied on airlines. This includes deferred payments on taxes as the Aviation Fuel Surcharge and more. The value of such a waiver is said to be around $1.3 – $1.6bn. Airlines may also be allowed to pay off the taxes interest-free in the next tax cycle.
While these measures will surely alleviate some pressure on airlines, it might not be quite enough. On average, airlines need a 70-75% load factor to break even. With load factors expected to be significantly less in the coming months, airlines may need more than just tax holidays. Some airlines will probably require direct capital in order to maintain financial obligations.
Which airlines are at risk?
The carriers most at risk are thought to be GoAir and SpiceJet. GoAir recently suspended all international operations and begin laying off expensive ex-pat pilots. SpiceJet is expecting a sharp decline in load factor as its stock has tumbled 73% from its peak last year. These two carriers will likely require government support the most in the coming months.
Meanwhile, Air India will likely seek more government support in order to stay afloat, though the Air India Pilots Union has said the government has hesitated in doing so. Vistara has suspended international operations and will be looking to cut costs, however, the airline will likely have to defer more deliveries of its 787 Dreamliners for the next few months.
Vistara is in a good position to survive, seeing as it is backed by the Tata Group and Singapore Airlines, who could potentially bail it out in the worst-case scenario. IndiGo is relying on its robust balance sheet to weather the storm but has cut nearly 70% of its international routes and begun grounding planes.
As governments all over the world help to bail out their travel industries, India seems to be joining the fray. However, the government’s tax holiday might not be enough if airlines do not see any demand for air travel. The $1.6bn bailout will allow airlines some breathing room for the next few weeks, but airlines are still in peril.
What are your thoughts on the government bailout? Should they do more or let airlines carry their own burden?