Centre plans ₹5,000cr relief package for airlines amid cost pressures
What's the story
The Indian government is considering a ₹5,000 crore relief package for airlines under the Emergency Credit Line Guarantee Scheme (ECLGS). The proposal could be presented to the Cabinet this week, as per CNBC-TV18. The decision comes as rising cost pressures from the ongoing US-Iran conflict continue to strain balance sheets of domestic and global airlines.
Relief measures
Proposed scheme to ease liquidity constraints
The proposed scheme seeks to ease liquidity constraints, especially for cash-strapped carriers, by providing government-backed emergency credit support. Officials are also mulling a cap on the amount each airline can avail under this scheme, ensuring wider distribution of funds across the sector. The relief is likely to be routed through ECLGS where the government guarantees banks to extend credit to stressed sectors.
Market impact
UBS downgrades InterGlobe Aviation to 'neutral'
UBS recently warned that "jet fuel prices as the elephant in the room," with volatility from the Iran conflict nearly doubling spot prices in some markets. The brokerage downgraded InterGlobe Aviation (IndiGo) to "neutral," citing sustained cost pressures and limited visibility on easing aviation turbine fuel, which remain high at around $200 per barrel. UBS also noted early signs of demand fatigue with April passenger data showing sequential and year-on-year declines in domestic traffic.
Industry response
Aviation ministry seeks approval for alternative routes
The aviation ministry is also seeking approval for the Hotan route through China, which would allow Air India to operate westbound flights without going through Pakistani airspace. This could help reduce fuel costs by avoiding longer diversion routes. The industry has also sought relief on jet fuel excise duty as base fuel prices remain high. These steps come after a 25% cut in landing and parking charges at 34 major airports for three months from April 8.
Operational challenges
Stronger airlines warn of flight reductions, higher ticket prices
Airlines with stronger balance sheets have warned the government that continued cost pressures could lead to flight reductions, resulting in fewer services and higher ticket prices. Weaker carriers face the risk of shutting down operations, which could impact connectivity and employment. Under the proposed ECLGS, assistance may be capped at ₹1,500 crore per airline.