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Increasing Government support as average daily remains at 49k

Indian Government incrementally has become more active in policy support for airlines. In FY21, the Government started intervention in pricing and capacity to maintain profitability of operations at variable cost level. From a complete prohibition of flights in Q1FY21, sector gradually opened to 80% in Q4FY21. International operations were only operated under agreed air bubbles and Government managed repatriation flights.

In FY22, Government has again intervened in light of lower traffic post Covid 2.0. The permissible capacity is cut back to 50% with price floors hiked by 15% from June 1 (link). Additionally, aviation is now eligible under the new provisions of ECLGS (Extended Credit Linked Guarantee Scheme) with a maximum limit of Rs2bn per borrower (link). While this will be helpful for working capital requirements (airlines have less of financial indebtedness but more of operational creditors), it is not a long-term solution.

Key points to consider include (1) if there could be more help under ECLGS in future (2) if Government could also allow cuts in GST rate on ATF, which has been a longstanding demand and can increase structural competitiveness of Indian airlines and (3) possible tenure of the capacity and pricing intervention by the Government.

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