Question

Post a news story of an external issue that affects at least one company. Discuss and explicitly state the issue, its potential impact on that company/industry, and how the company/industry should respond to that issue.

Answer 1

Coronavirus impact on avaition sector

Impact- Domestic air pax growth to further slow down amid coronavirus outbreak.

Domestic air traffic growth has been muted over Apr’19-Feb’20 due to weak demand. For March 2020, this should further weaken first due to travel advisories and then complete suspension of flights. All international and domestic flights have been suspended amid a lockdown.

Fleet additions likely to be deferred amidst demand disruption. With traffic likely to be impacted for at least over next 1-2 quarters, airlines would look to defer their fleet addition plans and/or terminate existing leases. While airlines are
still discussing with OEMs/lessors to re-align their fleet inductions.

Response- Airlines to rationalize costs to tide over this difficult period
Airlines are taking steps to cut down on costs a) Announcing salary cuts ranging from 5-20% b) Implementing rotational leaves to employees without pay and c) Cancelling/ reducing certain allowances it pays to its executive pilots, cabin crew and officers. Also, airlines are in talks with the lessors to explore any
deferment on lease payments which will support their near term liquidity requirement.

Industry awaiting relief package from the government
The aviation industry has represented to the government to provide certain relief measures. We understand such measures may include deferred payment of airport charges (esp at AAI operated airports) and statutory dues, reduction on tax levied on ATF and possibly extended credit period for ATF dues to OMCs. These measures, if
agreed to by the government, will provide some relief to the airlines.

Please note: This is particularly in reference to Indian avaition sector but can be generally used to!