The Covid-19 pandemic pummeled the global airline industry. Many airline companies had to cut costs, downsize, even sell off properties. Some airlines collapsed and had to declare bankruptcy, including the famous Virgin Australia.
According to a report published on the International Civil Aviation Organization (ICAO) website, the year 2020 (January-December) saw 51 percent reduction in the number of seats offered by airlines, as 2,851 million potential passengers could not travel, resulting in an approximate $391 billion loss in operating revenues.
In Nepal, the Airlines Operators Association of Nepal (AOAN) estimates a loss of around Rs 10.62 billion for domestic airlines in the March-December period last year. Among them, Buddha Air—one of the oldest private airline companies in the country—was the biggest loser, with approximately Rs 3.60 billion in forgone revenues. Shree Airlines came second (Rs 2 billion loss), and Yeti Airlines and Tara Air joint third (Rs 1.5 billion each).
When more developed countries were planning huge stimulus packages for their airline industries, the Nepali government waived off 75 percent parking fees, as well as ATC fees and other customary charges. But that was small relief for airline operators.
Although things are seemingly getting back to normal—even without vaccines or other interventions to cut Covid-19 infection rates—the airline operators are still struggling. The current reduced fares ensure most flights are occupied and the domestic terminals are busy as ever. But airline operators tell us that without international tourists, they can never hope to recover their losses.
“These are just survival flights,” says Anoj Rimal, CEO of Yeti Airlines. “The fares for Nepali passengers is too low for us to recover our losses. We can’t pull through without international tourists.” Rimal explains that even when regular flights are filled with domestic passengers, tourism hotspots like Pokhara, Bharatpur and mountain flights will not bring the airlines enough revenue without international tourists.
As for the cheap fares, Rimal attributes them to greater competition among airline operators in Nepal. The airfares should always be affordable to Nepali passengers, Rimal adds, and currently, almost all airline companies are looking to ensure cash flow rather than to make profits.
Will the fares start going up when tourists start coming? Rimal says that depends on the revenue management system of airline companies. Also, the plane fares are priced within the limits set by the government. But the current prices are definitely not sustainable, Rimal adds, and they might go up.
In 2020, the recently ousted Tourism, Culture and Civil Aviation Minister Yogesh Bhattarai was planning to remove the practice of “dollar fare” in Nepali aviation and ensure equal fares for all passengers. “Dollar fare” is a mechanism where foreign tourists pay more for flights to the same destination compared to Nepalis. When asked about the propose change, Rimal retorts that the rule is not applicable to Nepal. “Nepalis get to fly at reasonable rates only because tourists pay more,” he says.
No airline in Nepal would survive without the tourists paying more. You see the same practice in other countries, Rimal adds, with a warning that if the rule is enforced, almost all Nepali airlines will go bankrupt.
Rupesh Joshi, Director of the Marketing, Sales and Ground Handling Department for Buddha Air, also deems the equal fare rule impossible to apply in Nepal. Buddha Air has protested against its possible enforcement in the past and will continue to contest it.
On the operations front, Joshi informs that owing to its many years of operations and legacy, the airline company is in a better shape than most of its competitors. With Rs 3.6 billion of total projected revenue loss, Buddha Air’s actual monthly losses were around Rs 70 to 80 million when operations were closed.
The company is now on a stable road to recovery, Joshi informs, with almost 95 percent occupancy on all routes. Buddha Air expects to reach breakeven soon at this rate. But even for this airline, which owns 13 aircrafts and operates 33 flight routes over 15 destinations across the country, the chances of profits are low without foreign tourists. “We can’t think profits without foreign tourists,” Joshi says. “Domestic passengers will only help us sustain till international travel resumes.”
As for the influx of domestic passengers and reduced fares, Joshi informs that besides tough competition, you also have to factor in decreases in fuel price and other operation costs. Owing to low fuel prices, airlines are attracting passengers who previously took road transport because the total cost of reaching the destination has become almost the same and flights are comparatively safer and faster.
Compared to airplane services, which have become a major mode of transport in Nepal in last few years, the helicopter industry that makes remote areas accessible and is almost exclusively dependent on foreign tourists is under greater threat. According to data provided by AOAN, between March and December 2020, the helicopter industry lost almost Rs 800 million. The total foreign exchange revenue loss for the two tourist seasons in 2020 amounted to approximately Rs. 1.8 billion.
“As the helicopter business gets over 95 percent of its revenues from tourism-activities in the Everest Area and Pokhara, it is going to have the hardest time recovering,” says Yograj Kandel, spokesperson for AOAN. “Overall revenues for helicopter industry was almost nil in 2020 and a swift revival looks unlikely. So, this segment of Nepali aviation is headed for a total collapse.” The collapse, if it happens, will also affect the banking sector as the helicopter industry alone has a debt of approximately Rs 4.3 billion as of December 2020.
Yogesh Sapkota, chief marketing officer at Simrik Air, informs that although there is small amount of business from the local market, the company is dependent on foreign tourists. “For us, if there are no foreign tourists, there is no work,” Sapkota says. “What we make from some chartered flights and domestic tourists is not even enough to pay the insurance fees of our helicopters.”
Adding to the woes of helicopter companies is that even when there is no business, operating costs are still almost the same. “It is not an industry that can be shut for a while and then resume when the business is back,” Sapkota says. “Owing to mechanical and technical requirements and to adhere to the norms of civil aviation, we have to keep our machines operational. We have to move our rotors every day.”
Even as domestic flights are generating day to day expenses for domestic airlines, the helicopter industry has no such fallback option. As things stand, there is no scope for recouping operating costs let alone breaking even. “Still, the hope that there will be a vaccine someday and tourists will start coming again is what’s keeping the helicopter businesses from shutting forever,” Sapkota says. “We go to work every day dreaming that the next day will be better. That’s how we spent the whole of last year.”