Airlines, hotels stare at uncertain future amid coronavirus spread: CARE

Aviation, hotel and media companies face an uncertain future because of the 21-day lockdown in the country and would require a bailout from the government immediately, analysts said. The aviation industry, which includes airports and their vendors and suppliers, might not fully recover soon from the impact of the coronavirus disease (Covid-19) pandemic.
 

In an outlook analysis of the coming financial year, rating firm CARE said domestic scheduled airlines, too, have started facing severe cash flow pressures as they are not allowed to fly till April 14, which has resulted in salary cuts for employees. Even after the nationwide lockdown ends, airline fares will remain low considering the lack of air travel demand and scaling down of certain routes, CARE said.
 

Passenger growth of airlines will fall sharply and might register a decline of 20-25 per cent in financial year 2020-21 (FY21), CARE said. This was in sharp contrast to the growth of 13.7 per cent in FY19 and 3.7 per cent in FY20 (till February). Given the fall in airline operations, airports are also likely to operate at less than 20 per cent capacity for April and at half capacity till June. This might result in a decline of 8-15 per cent in passengers handled (domestic and international) by airports.
 

In the case of hotels, CARE said, Covid-19 had already impacted March quarter revenues and as the lean season begins for both the business and leisure segments from April, firms will have some time to realign through cost rationalization and process improvement measures before the next peak season.
 

The operational parameters (occupancy rates and average room rates) of hotel players are expected to get adversely impacted in the next couple of quarters. Though a medium-term impact, this may lead to lower cash flows and, thus, exert pressure on profitability and liquidity.
 

CARE said the impact of Covid-19 could be seen across all verticals of the hotel and tourism sector — leisure, adventure, heritage, cruise and corporate. Given the travel restrictions imposed by the Centre as well as governments across the globe, advance bookings for conferences and leisure travel to foreign destinations have already been cancelled. In India, too, most of the summer holiday bookings have been cancelled. The impact on inbound and outbound passengers is expected to be most severe in the next couple of quarters.
 

The rating firm said India’s total foreign tourist arrivals was 10.9 million and foreign exchange earnings was Rs 2.1 trillion in 2019, with Maharashtra, Tamil Nadu, Uttar Pradesh and Delhi accounting for about 60 per cent of arrivals. However, with travel restrictions, most flights being suspended, and the lockdown, domestic as well as foreign travel and tourism industries are expected to witness a sharp impact in 2020.
 

Similarly, large industries such as television, print, film entertainment, live events and out-of-home media will take a hit on their revenues, CARE said.
 

On auto and auto components industry, the firm said many Indian firms are dependent on Chinese supply chains. Shifting to other countries (such as Germany, Japan, Korea) for supply might not be feasible in terms of both cost and time. CARE said in addition to the existing slowdown, the industry was likely to suffer huge losses because of the pandemic.

Employment in the industry is at risk as contractual workers accounts for about 50 per cent of workforce.

“Even if the pandemic is curtailed, consumer sentiments are expected to be unfavourable and demand is expected to remain muted during next two quarters,” CARE said.
 

On the outlook for the oil sector, the rating firm said consumption of crude oil could fall by 2.3 per cent during FY21 as processing by refiners might decline because of low demand. 

“Even post the 21-day lockdown Indians will be skeptical to travel anywhere any time soon,” it said.