OYO and Mahindra Holidays’ new strategy is based on the premise that airlines are doomed for a while⁠— both Emirates and Boeing agree

  • OYO founder Ritesh Agarwal as well as Mahindra Holidays chairman Arun Kumar Nanda believe people are not going to fly anytime soon.
  • The aviation industry is staring at losses to the tune of ₹25,000 crore, according to a CRISIL report.
  • The fear of the crashing aviation sector is real. Billionaire Warren Buffett’s company Berkshire Hathaway recently sold all of its stocks in US-based airlines.
“Goa may be the new Thailand,” said OYO founder Ritesh Agarwal when asked about his post-COVID-19 strategy. The CEO of Mahindra Holidays, too, believes people aren’t going to fly anytime soon. So both companies are banking local destinations more than foreign travel.

The reasons for billionaire Warren Buffett’s company Berkshire Hathaway dumping all of its airline stocks ⁠— Delta Airlines, American Airlines, Southwest Airlines and United Airlines ⁠— are similar. Buffett had gone on to say he was “wrong to invest in the airlines industry.”

And now, the chief of Emirates Airlines just confirmed the industry’s worst fears. “We expect it will take 18 months at least, before travel demand returns to a semblance of normality,” Sheikh Ahmed bin Saeed Al Maktoum, Chairman and Chief Executive, Emirates Airline and Group, said this week after the group, which operates one of the world’s largest airlines, posted 28% fall in profit as global travel came to a standstill in March.

The coronavirus pandemic has left the Indian airlines sector stranded on the runway. All domestic and international flights have been suspended ever since the lockdown. “It will take 2-3 years for air travel to return to 2019 levels and a few more years to return to long-term growth trends according to Boeing,” said a Centrum Broking report last week.

In China, where the coronavirus pandemic began earlier, and is now abating, the economy is slowly recovering. Even domestic tourism in China is still less than 60% of what it was last year. “

Foreign travel may take longer to recover. In their recent earnings call, Arun Kumar Nanda, chairman of Club Mahindra, said that shorter distances should do better than remote and that is why Mahindra is continuing with its expansion plans as well. “Domestic tourism is going to increase,” he said during the call.

The aviation industry is staring at losses to the tune of ₹25,000 crore, according to a CRISIL report.

“These are preliminary estimates, and aggregate losses could increase if the lockdown is extended beyond the first quarter. As and when operations resume, overall operational capacity will hover at 50-60% for the rest of the fiscal. Consequently, mergers and acquisitions of airlines, and relook at expansion plans of private and upcoming greenfield airports would be possibilities," said Jagannarayan Padmanabhan, director and practice leader, transport & logistics, Crisil Infrastructure Advisory.

Globally, the industry’s revenues could be cut by $252 billion in 2020.

See Also:
Bajaj Finance shares surge as Nirmala Sitharaman’s cash injection for both NBFCs and small businesses will benefit Sanjiv Bajaj’s company
Uday Kotak says Kotak Mahindra Bank 'needs to be clear on lending' as profits dip by 4% fall in the fourth quarter