The Union Civil Aviation Minister of India has granted airlines permission to operate passenger aircraft for the transport of essential commodities and medical supplies across the country.
The Indian government announced the grounding of all commercial flights in the country on March 22 in light of the ongoing Coronavirus pandemic. International travel has proven to be a catalyst for the virus’ spread. In the last few weeks, it also transmitted domestically to various states because of travellers.
March 24, 11:59 PM was the deadline. Since then, not a single airline has operated any flights for passengers. Over 650 aircraft remain grounded due to the Central Ministry’s decision. Only freight aircraft of companies like BlueDart, DHL, FedEx, and SpiceXpress were allowed to operate since they only needed a crew of two.
In light of the grounding, airlines like IndiGo and GoAir urged the government to allow operation of flights, but just for cargo. In simple terms, the same aircraft that can carry 180 passengers, will fly with zero passengers and only freight, in the cargo hold. Now, the first question is, why would an airline want to operate empty flights? Secondly, isn’t this a loss-making endeavour since they’re not earning anything from the empty seats?
To answer these questions, we first need to understand the benefits of operating these flights:
- India’s on-ground logistics came to a grinding halt when the Prime Minister announced a 21-day lockdown across the country. In the first couple of days, the lack of transparent notifications meant that local enforcement authorities like the police clamped down on any and every vehicle on the move. We’ve already covered in detail how small and medium-sized businesses have been affected. Drivers who are the backbone of roadway supply chains are hard to find. That’s because they’re worried about their own lives, scared of the local cops, and prefer self-quarantine in their hometown.
- It means that essential supply chains of multiple FMCG companies are cracked. I spoke to a business operator who relies on imports from China, and he has confirmed that goods are either stuck on ships or ports. Container movement, the backbone of a modern economy, has come to a grinding halt. In an Indian Express article, Bhushan Patil, the trustee of Jawaharlal Nehru Port Trust, confirmed that cargo movement has reduced. “The average cargo container used to arrive 1.25 lakh at JNPT against today’s arrival of 80,000 to 90,000 containers,” he said.
- States have sealed their borders to contain the spread of Coronavirus internally. While exemptions are in place for essential goods, the above two points make it impossible to rely on ground-based logistics.
- If drivers are worried about their health, what about the pilots, ground handlers, and other aviation professionals? Aviation is the safest mode of transport because every small detail and procedure has to be followed. You can drive a truck with worn-out tyres and employers may not care whether the driver is in fit-condition even to drive. However, a plane will also be grounded if one screw is too fatigued and only pilots have a range of checks to pass, breathalyzer being the most common. The point is, it’s easy to manage safety protocols in the aviation industry. The professionals are supplied protective gear, hand-sanitizers are abundantly available across airports, and in general, the alertness is at an all-time high. Hence, flying just cargo is reasonably risk-free.
- Lastly, and most importantly, air travel is the fastest. A container truck can take an average of 36 to 48 hours to reach Delhi from Mumbai’s JNPT port. But an aircraft can cover the same distance in 1 hour 45 mins (remember, congestion doesn’t exist right now). The pandemic is spreading like wildfire and India’s graph is steadily climbing. In times like these, the fastest mobility is the best recourse. Also, these grounded aircraft can bridge the gap of tens of thousands of container trucks or even trains.
Back to the original question, how will airlines make money without flying a single passenger?
- Before we get started, let’s get this clear. I’ll be referring to the Airbus A320 to explain the economics. IndiGo has roughly 220 of them, GoAir has more than 50, Air India has around 35, and AirAsia has almost 30.
- Whenever you fly, the airline receives some revenue from the seat it sold you. But that’s not the only source of income for them. Beneath you, is the plane’s belly. That’s where your check-in luggage is stored and there’s also a massive amount of cargo stored that’s shipped along with you. It could be anything. Third-party packages of courier companies like Delhivery, e-commerce packages, or even IndiaPost mails. It could also be a dedicated package that’s directly being handled by the airline’s cargo division. IndiGo has an internal division called CarGo that manages it. Every airline has an internal arm like that.
- This cargo hold is crucial for the airline industry. Revenue estimates vary from as little as 5% for smaller aircraft to 40% on a Boeing 777. For a narrow-body short-range flight of an A320, we can expect it to be around 10-15%. That’s considerable revenue for an industry that has an average profit margin of just 5% globally according to industry body IATA.
- The A320’s cargo hold can roughly carry slightly more than 9,000 kgs of cargo in one go. That’s 9 tonnes, however, if you remove the passengers, seats, and everything else that takes up weight, and fill the complete cabin with load — it can be anywhere between 15-18 tonnes conservatively.
- While Coronavirus has caused the stock markets to crash worldwide, it has also brought down crude oil prices drastically. In September, one barrel of crude oil cost more than $70. Today, it’s available for a little more than $20. Why? Because pretty much the whole world is on lockdown and the demand is down. It is a silver lining for the airlines because they can operate flights at 3.5x lesser operational cost. The price of crude oil is directly proportional to aviation turbine fuel. And a majority of operational expenses are on fuel. Hence, zero passengers mean lower load, more cargo, at 3.5x less fuel rate.
- Airlines like China Eastern and Cathay Pacific have already started reconfiguring their passenger aircraft to accommodate more cargo. A plethora of airlines will follow the same model because this generates some revenue for them. We’ve already explained in detail how an airline burns money when their planes don’t fly. Every hour an aircraft is grounded, the airline is getting billed for lease, staff salaries, maintenance cost, and more. The cargo model ensures the airlines have some positive cash flow than a negative one.
- It’ll help airlines use their stranded aircraft to ferry essential goods like masks, protection equipment, medicines, critical food, and much more with quick turn-around time. India has just started its fight against Coronavirus, and a lot of imports will be needed in the coming weeks. These 650 planes can be deployed to not only save lives but also save the airlines from a cash crunch. The economy has already taken a massive hit, and the world is heading for the greatest slowdown since the Great Depression of the 1930s.
- If a supply-chain is available, FMCG companies and a few other industries can again start production and manufacturing at a smaller scale, instead of a complete shutdown. India is pretty well connected with the full availability of airports. It’s time we leverage this critical infrastructure.
- Regular operations of flights will continue employing the aircraft crew, ground handlers, airport staff, as well as air traffic controllers. Furthermore, frontline warriors in the healthcare ecosystem will get a steady flow of supplies to deal with the oncoming barrage of Coronavirus victims.
- The Indian government is planning a rescue package worth $1.6 billion for domestic airlines. Sources suggest these measures could consist of temporary suspension of most taxes levied on the sector, including a postponement of aviation fuel tax.
- If the aircraft are actively in use, they don’t need to be stored. Maintenance of an active plane is more comfortable since faults and fatigue can be easily detected. Bringing a stored plane back to life is like starting a cold car engine, just, 10x harder and complicated.
- While IATA estimates airlines will lose more than $100 billion due to the ongoing Coronavirus crisis, many experts now believe the figure could balloon further. In fact, a wide range of airlines with different business models are at the risk of bankruptcy. The U.S government has already declared a bailout package of $50 billion for its aviation industry.
All in all, the decision by the Central Ministry will not only help airlines mitigate their losses but also help healthcare workers in bridging the logistics gap. While millions of people are stuck in various cities, away from their home, the decision to lockdown, the country will be a boon in the longer run. Industries are sure to bleed, but these small steps shall go a long way in reducing the ultimate impact.
Featured image by Utkarsh Thakkar (@vimanspotter)