𝐀𝐧𝐨𝐭𝐡𝐞𝐫 𝐲𝐞𝐚𝐫 𝐨𝐟 𝐦𝐚𝐣𝐨𝐫 𝐥𝐨𝐬𝐬𝐞𝐬 𝐟𝐨𝐫 𝐭𝐡𝐞 𝐈𝐧𝐝𝐢𝐚𝐧 𝐚𝐯𝐢𝐚𝐭𝐢𝐨𝐧 𝐬𝐞𝐜𝐭𝐨𝐫 𝐢𝐬 𝐚𝐧𝐭𝐢𝐜𝐢𝐩𝐚𝐭𝐞𝐝 𝐢𝐧 𝟐𝟎𝟐𝟏-𝟐𝟐: 𝐂𝐀𝐏𝐀 𝐈𝐧𝐝𝐢𝐚

 Indian aviation industry to incur losses with decreasing revenue and growing costs in 2021-22.

To say that airlines have experienced turbulence in 2020 would be an understatement. Airlines have collectively lost $120 billion and counting in what is aviation's most challenging year. It is predicted the losses will worsen.

In 2021-22, the Indian aviation industry is expected to continue to incur major losses and IndiGo airlines will emerge significantly stronger than their competitors from the COVID-19 pandemic, said aviation consulting firm CAPA India on Monday.

The price of oil and the exchange rate are two of the key factors affecting the cost of operating an airline.

Although revenue remains under pressure, costs will also increase compared to FY2021, the aforementioned study added that the Brent Crude is expected to be USD 50-60 per barrel on average and that the USD/INR exchange rate is expected to stay in the 73-75 range over the next fiscal year.

In its report on the 'top ten trends to watch in 2021,' CAPA India said, "Airlines will have to carry the costs of a large proportion of their fleet remaining grounded, especially those that were earlier deployed on international routes." The report said that consolidation in the Indian aviation industry is inevitable and could result in a "2-3 airline system" in the near to medium term. "The structure of competition may change in the near to medium term, possibly resulting in a two-horse race in both the airline and airport sectors," it said.

The dollar is expected to strengthen further on the foreign exchange front, causing India's airlines a great deal of pain. This is because lease, maintenance and financing payments are in dollar terms while revenues are in rupee terms. The currency difference would lead to greater cash outflow pressures. It is likely that this burden will continue. 

The recovery in demand, particularly in international traffic, remains uncertain. Airlines will not be profitable in the absence of a complete recovery in higher-yielding sectors such as corporate travel. Unless the government intervenes in the form of sector-specific policy initiatives, lenders and investors will remain wary of the industry (especially airlines). The government, at least for the first half of 2021, might be tempted to retain price floors and caps.

For the near future, foreign flights are likely to continue operating under bubble arrangements rather than under bilateral air service agreements. Airlines have been operating special international flights under air bubble arrangements implemented with around 24 countries since July.

Airlines of the two countries can operate flights between their territories with some restrictions, under a bilateral air bubble arrangement.