International Conference on Future of Aviation & Aerospace, hosted by IIMB, strikes a positive note on growth prospects and sees need for renewed focus on environmental sustainability
12 MARCH, 2022: Grit, gumption and enterprise have been the hallmark of the players surviving in the commercial aviation industry today. The outlook/ prognosis for the aviation sector 2022-2023 is far from certain but a number of positive developments that we are witnessing today are indeed encouraging, said experts from the industry who were speaking at the international virtual conference on the ‘Future of Aerospace & Aviation (FoAA)’, hosted by the Executive Education Programmes Office of IIM Bangalore, today, in association with Toulouse Business School, France, and Kempegowda International Airport.
The guests in the inaugural session included Prof. Rishikesha T Krishnan, Director, IIM Bangalore; Hari K Marar, MD and CEO, BIAL; Bhaskar Bhat, Chairman, Tata Singapore Airline (Vistara); and Srinivasan Dwarakanath from Airbus.
“With the possibility of not witnessing another COVID wave, the financial year 2022- 2023 should be a better year for passengers. It will be a recovery year for those who may have lost their jobs or are aspiring to join the aviation industry too as there will be a employment generation due to the entry of new players,” said Chair of the International Conference and Professor of Strategy at IIMB Raghunath S, in his opening remarks.
In his welcome address, IIMB Director Prof. Rishikesha T Krishnan, who has written and published cases on the Indian aviation industry, emphasized the role of sustainability and ecological friendliness. “Recent reports from the IPCC suggest that we might soon be reaching the point of irreversibility, and aviation has often been identified as one of the important sources of greenhouse gases that affect the environment. However, I am enthused by reports of lower carbon footprint of the industry with the use of alternative fuel.”
Prof. Rishikesha Krishnan also underlined the importance of paying greater attention to risk management. Quoting from Indigo’s risk factors report from a few years ago that had listed a SARS-like virus disrupting the sector, he said it is important for the industry to be nimble, agile and resilient to future disruptions. “Indian aviation has certainly seen its ups and downs over the years. However, I am optimistic about the prospects of Indian aviation for a few reasons – there are well capitalized players in the domestic segment, there are a variety of players in terms of strategies and objectives, there is good infrastructure on the ground, and there is strong latent demand,” he added.
In his address, Hari K Marar, MD and CEO, BIAL, said the aviation sector is not new to shock and is resilient. “The whole world, especially the younger generation, is converging on the fact that the pandemic is an opportunity to build back better. We have built back trust and confidence in air travel but we have more to do,” he said, listing three themes – looking at the problem of travel/ transport from a consumer’s standpoint and introducing multi-modal connectivity, using technology as an enabler and building the DigiYatra platform as a mobility stack for India, and ensuring sustainable progress and social inclusion in the industry.
In his keynote address, Bhaskar Bhat, Chairman, Tata Singapore Airlines (Vistara), quipped that he shed the coat for the talk as he believes airlines must shed cost! He listed economics, policy, innovation and customer service as key themes. “India has an aspiring population and that explains the huge potential for the aviation sector. Rising cost has impeded profitability of airlines in India and has caused the demise of some yet aviation is seen as an attractive sector. Someone wise in the sector told me that, in India, aviation is a cyclical business, and players must have deep pockets to sustain in the long term. So, when the going is good, build your balance sheets and prepare for the downturn.” Expanding on key themes, Bhaskar Bhat said: “While the country has benefited significantly from scale in different sectors like telecom, this model doesn’t work for the aviation sector. Premiumisation is a must as Indian customers respect value for money. Sovereign support for aviation is important and governments must create an enabling environment for industry.”
Prof S Raghunath pointed out that Low Cost Carriers (LCCs) are continuing to respond to the crisis caused by the pandemic by jumping into market gaps left by other players and by exploiting new opportunities in the cargo business, demonstrating agility, moving aircraft around extensively and delivering capacity in the face of supply chain bottlenecks for road, rail and port-based freight and supporting growth in e-commerce. For example, cargo has made a particularly important contribution to airlines in India in FY2021.
Cargo is likely to remain a valuable revenue stream through 2022 and many airlines have adapted effectively to exploit this. In India carriers are expected to achieve a 15% year-on-year increase in cargo revenue.
The best airlines, he pointed out, are using digitalisation to increase nimbleness and agility. There is an increased use of AI to enable not only the speed but also accuracy of more frequent changes to schedules and aircraft deployment.
There is an expectation that air traffic to return to its 2019 peak in early 2023. “The largest industry segment is single aisle aircrafts. Deliveries of these aircrafts increased by more than 40% in 2021 and are expected to another 40+% in 2022. However the bad news in the Indian aviation industry is about massive losses that have created a debt trap which has resulted in most airlines having very limited means of recapitalisation. Lenders don’t seem to have a solution for airlines, even for restructuring purposes; and lessors have no alternative but to start applying pressure on defaulting airlines. Overall, Full Service Carriers (FSCs) and Low Cost Carriers (LCCs) are expected to contribute more or less equally to the accumulated loss in the airline industry. The projected losses could rise further if necessary recapitalisation comes in the form of debt, for which borrowing costs will need to included. At this stage it is not known how recapitalisation will be funded,” Prof. Raghunath observed.
In the aerospace sector, deliveries were hit last year for logistical reasons alone – pandemic related factory closures and supply chain disruptions. But, actual demand wasn’t hit. Defence demand remained strong, both for geopolitical reasons and because defence spending is viewed as a good way for governments to support aerospace industries in a difficult time. It is expected that aerospace output will fully recover to pre-pandemic levels in 2022, with more growth in future years, said the experts.
The keynote sessions were followed by four panel discussions on different aspects of recovery in the aviation and aerospace sector. Madan Mohan Raj, Chief Programme Officer, Executive Education Programmes at IIM Bangalore, set the context for the discussions.