The outlook for India's aviation industry remains "negative" in the wake of the coronavirus outbreak, which has resulted in many international passengers cancelling their travel to South-East Asian countries, according to rating agency Icra. More than 81,000 people have been infected and over 2,700 people have died due to coronavirus. China is the epicentre of the virus outbreak. Icra noted that the outbreak has impacted travel to and from China as well as other South-East Asian countries.
"The suspension of flights on the India-China sector will not result in any significant impact on the financial performance of the airlines, unless the lockout is prolonged, as the traffic on these routes accounts for only 0.9-1.3 per cent of the total international passenger numbers," Icra said on Thursday. However, the agency said the impact is expected to be severe if passengers from other South-East Asian countries, hit by coronavirus, cancel their travel. Traffic from these countries account for around 19.5-23.8 per cent of the total international passengers flying to and from India, it noted.
The extent of the impact of the flight/ ticket cancellations on the profitability of the domestic airlines would, however, vary depending on the airlines' presence in these routes. In a note, the agency said it has "maintained its negative outlook on the Indian aviation industry in view of the ongoing lockouts in parts of China following the outbreak of the coronavirus". Some airlines have already discontinued flights to China and Hong Kong until June 2020.
Air India has temporarily stopped flying to China and Hong Kong till June 30. The airline has also reduced the number of flights to Singapore. Vistara has decided to cancel 54 flights to Singapore and Bangkok in March. GoAir has suspended its operations to Singapore and has also scaled down the number of flights operated to Phuket and Bangkok. Among other carriers, Singapore Airlines has extended the suspension of flights across its network, including India, till the end of May.
However, Icra said the decline in jet fuel prices would partly compensate airlines' loss of revenues due to flight cancellations. Crude oil prices have fallen in the wake of the coronavirus outbreak, which has impacted many countries. Icra said the medium-term impact on the domestic aviation industry would also depend on the economic shock to the global economy due to the coronavirus outbreak. Historically, foreign airlines have enjoyed high market share while domestic airlines account for less than 40 per cent of the total passengers carried on international routes to and from to India, Icra Vice President Kinjal Shah said.
"Assuming the same proportion on routes to and from China and other impacted South East Asian countries, the Indian aviation industry could see a maximum impact (of 19.5-23.8 per cent) on the international passenger traffic growth...," she said. This impact would be there in case there is a complete suspension of flights to and from these countries, as they fly 4.5-5.5 million passengers, she added. According to her, such a scenario would be negative for the Indian aviation industry, which is already reeling under significant passenger traffic slowdown, with the international traffic growth for up to December quarter of the fiscal having witnessed a decline of 8.4 per cent.
As per Icra, a prolonged shutdown of manufacturing activities in China and the subsequent impact of the outbreak on the global economic activity could result in a slump in global oil demand. "The jet fuel price has declined materially following the coronavirus outbreak in China. This was the sharpest decline in prices since Q4 CY2018," Shah said. Aviation Turbine Fuel (ATF) Jet fuel accounts for around 40 per cent of an airline's operational costs. A decline in the ATF price by USD 1 at the current level would have a positive impact of 0.5-0.7 per cent on the profit margins of the airlines. This would partly compensate their loss of revenues due to flight cancellations, Shah said.