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Exactly a year ago, we wrote ‘Andra tutto bene’ (everything is going to be alright!) in which we analysed the likely changes to customer behaviour, business model, etc. We revisit the thoughts, look beyond the noise, and present potential changes in operating environment and likely beneficiaries – Va tutto bene (everything’s fine!). A root-cause analysis of every trend indicates that it is a consumer / customer behaviour change. ‘Andra tutto bene #11’ is here – link

Top long-term trends in aviation include: 1) doubts on air travel recovery post Covid, especially in the corporate segment; 2) extensive lessor negotiations (see page 3); 3) industry consolidation due to weak balance sheet among many airlines; 4) improved pricing discipline.

Beneficiaries:

Not Applicable Potentially negatively impacted companies:

Indigo and SpiceJet See our previous reports in the series (link) – Consumer, Agriculture, Pharma, Real Estate, Telecom, Power, Dairy, Capital Goods, Cement, BFSI, Building materials, Oil & Gas, Logistics, Defence, Diversified Financials, Metals, Autos, Branded apparels

* Second Covid wave and absence of corporate travel can delay complete revival: Average daily passenger count declined from 387k in FY20 to 64k in Jun’20 and recovered to 280k in Feb’21 to again fall to 238k in Apr’21 as Covid cases started to rise. Government of India allowed Indian domestic flight operations to resume from 25th May20 with 33% capacity. This was increased in a staggered manner to 80% by Dec’20. While resuming operations, the civil aviation ministry also introduced floors and caps on fares charged by the operators. The lower fare cap has been increased by 5% to adjust for the fuel price hike in Mar’21 while the upper cap remained unchanged (table 1). This will help airlines mitigate the impact of higher fuel cost to some extent.

* We remain positive on revival of long-term air traffic demand: Historically, we have seen sharp recoveries in air traffic post shocks – as during oil crisis (1979), Gulf War (1991), terrorist attack in the US (2001) and the global financial crisis (2009) (see page 2). While the impact on travel is significantly higher this time, we believe traffic can equally bounce back on recovery from Covid due to pent-up demand, especially in the leisure segment. Increased use of digital communication can lead to systemic adoption of less travel by corporates, but the efficacy of personal meetings will remain and easy information access on the status of Covid globally can restore confidence fast. However, the entire aviation business will continue to operate at suboptimal levels until recovery from the pandemic.

Likely short-term trends to emerge

* As of now, daily passenger count can remain limited to 250k due to absence of corporate travel

* Demand is likely to improve in tiers-2&3 cities compared to metros (table 3, and charts 1 & 2)

* There will be greater focus on cargo rates amid low passenger demand.

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