BD airline, travel industries need support to survive

- A Monitor Desk Report 11 May, 2020 | 935 Views|-+
Dhaka: The airline and travel industries in Bangladesh are now grasping for breath. Current situation in Bangladesh, created due to COVID-19, is very bad—no different for the rest of the world. Strong government support is the need of the time, to save the industries from sinking.

By September 2020, international air passenger totals could drop by as many as 1.2 billion travellers when compared to what would normally be regarded as “business-as-usual”. This is the latest projections from International Civil Aviation Organisation (ICAO)-the UN Body.

The estimates also show that international capacity could drop by as much as two-thirds from what had been forecast for the first three quarters this year, leading airline revenues to drop by as much USD 160 - USD 253 billion for the January to September period.

Europe and the Asia Pacific will be hardest hit by the capacity and revenue impacts, followed by North America.

Similarly, the most substantial reduction in passenger numbers is expected to be in Europe, especially during its peak summer travel season, followed by Asia Pacific.

“As overall severity and duration of the pandemic are still uncertain, ICAO has developed six different recovery paths under two indicative scenarios to explore the potential short-term economic implication of the COVID19 pandemic,” said Dr Fang Liu, Secretary General, ICAO in a statement about the projections.

IATA’s estimate

The International Air Transport Association estimates that USD 1 trillion plus in financial support and bailouts is needed for the industry to get back on its feet.

The majority of passenger airlines grounded their fleets. Those which did not have reduced their network by around 90 per cent, operating only key routes between major hub airports still open, or else regional routes serving remote destinations under a public service obligation. Whether due to evaporated passenger confidence or whether because airports have been forcefully shut by states, airline traffic has been reduced to roughly 10 per cent and revenues for Y2020 are expected to plummet 50 per cent over 2019.

According to an IATA estimation, global Airlines is expected to lose USD 314 billion in 2020 in ticket sales alone and to meet this tough challenge, airlines are already implementing various cost cutting measures, which includes: pay cuts of staff members at all levels; drastic retrenchment of workforce; effective cost cutting measures; drop out loss making routes from the existing network; dispose off under utilised aircraft; and cut staff benefits, including OT and similar other measures.

World’s one of the two leading aircraft manufacturers Airbus Industries has already put 6000 of its workers in UK and France on government furlough, whereas British Airways plans to cut job of its 12,000 staff. Similar measures have already been announced by several other airlines.

Globally some airlines have already been forces to take some unpleasant decisions to face the current crisis. Virgin fires more than 3,000 people including 600 Pilots. Virgin Australia files for Bankruptcy. South African Airways files for Bankrupt. Finnair lays off 2,400 people. YOU fires 4,100 people. Ryanair gets rid of 900 pilots already and 450 more in the coming months. Norwegian fires 520 pilots. Ethiad cancels 18 orders for A350, lays off 720 staff. Emirates grounds 38 A380s and cancels all orders for the Boeing 777x (150 aircraft, the largest order for this type). Wizzair returns 32 A320s and lays off 1,200 people, including 200 pilots, another wave of 430 layoffs planned in the coming months. Remaining employees will see their wages reduced by 30 per cent. IAG (British Airways’ parent company) abandons the takeover of Air Europa (and will pay EUR 40 million compensation for that). IAG (Iberia) grounds 56 planes. IAG (British Airways) grounds 34 planes. Everyone over 58 to retire. CSA abolishes its long-haul sector and keeps only five medium-haul aircraft. Euro wings goes into Bankruptcy. Lufthansa plans to ground 72 aircraft. Hop is studying the possibility of reducing fleet and staff by 50 per cent.

There are strong indications that these actions are just a beginning. The global airline industry with operation grounded, is struggling to find way-out of the unprecedented crisis. The final toll is impossible to predict now.

BD scene

In the backdrop of this pathetic global situation, the fledging airlines in Bangladesh are looking at a very gloomy future, while struggling to survive the current crisis.

At the moment, except Dhaka-Guangzhou route of US-Bangla Airlines, all international and domestic routes of all the four airlines are closed, though temporarily.

A total of 44 aircraft belong to these four airlines — Biman - 18, US-Bangla - 13, NOVOAIR - 7 and Regent Airways - 6. Almost all these aircraft are now grounded as there is no operation.

Situation in all the four airlines of the country — state owned Biman Bangladesh Airlines and private — Regent Airways, NOVOAIR and US-Bangla Airlines — are similar and with closure of flight barring one, most of the aircraft are now laying grounded.

No income, huge expenditure

Except some rescue flights by Biman and US Bangla, there is no flight operation for quite sometimes now. As a result, the revenue income of all the airlines nose-dived.

While there is hardly any income, the airlines are carrying the heavy burden of some fixed expenditures, such as civil aviation charges, maintenance of aircraft, salary of employees.

National carrier Biman Bangladesh Airlines burdened with huge workforce—higher than the industry average—has this far failed to come up with a proper business plan, though it is now equipped with most modern, young and dependable fleet.

With virtually no income, the national flag carrier is surviving on financial support from the government. Already, the airline has borrowed BDT 1000 crore from one public sector commercial bank.

Mukabbir Hossain, Managing Director and CEO of Biman Bangladesh Airlines said with no flight, there is no income or revenue. But Biman is to maintain the grounded aircraft and 17 overseas offices in addition to head-quarter and domestic offices. The situation resulted in loss of BDT 400 crore in the month of January, February and March.

Abdullah Al Mamun, Managing Director of largest private carrier US-Bangla Airlines said as of late March, the airline has incurred a loss of BDT 250 crore. “In past eight months, we have expanded our fleet with six brand new aircraft. But coronavirus has crippled us. Last hope — the domestic operation has also topped."

While there is no operation, bank installments, cost of aircraft maintenance, various taxes and civil aviation charges, overseas offices and salaries of employments are putting huge pressure on private airlines, Mamun added. He demanded declaration of “rescue package” by the government.

The struggle

After struggling for almost three decades, private sector airlines of the country—except Regent Airways—just started to see some lights, when struck by the current situation. Regent Airways stopped operations at the beginning of the present pandemic crisis. US Bangla and Novo showed resilience till authorities suspended all scheduled air services.

There is no doubt airlines of the country are providing great services by being one of the major contributors in maintaining connectivity within the country and abroad and contribute significantly in the country's economy and accounts for creating direct and indirect jobs for thousands of people.

So, the domestic airline industry deserves special consideration. Similar to most of the other countries in the world, airline industry should be provided with solid rescue package by the government.

With national budget coming soon for the next fiscal, the following recommendations must be taken into consideration to help survive the airline industry:

Tax structures for the local airlines in importing their aircraft, spares should be brought down to a greater extent for the next year at least.

Landing, parking and navigational charges of CAAB should be reduced by at least 50 per cent, but it would continue to remain same for the foreign airlines.

Access to fund for the local airlines should be made much more easier. Advise commercial banks to waive their interests on Bank borrowings at least for this disaster period.

Reduce fuel supply cost to local airlines, while it may continue same as of now for foreign airlines.

Upgrade radar and navigational facilities at Dhaka and Chittagong airports, which would ultimately help Civil Aviation Authority to earn much more revenue, facilitating services to more airlines, as these two airports are considered as convenient gateway between east and west.

Introduce a new tax scheme as excise duty for all air travellers, which many a countries impose after some kind of disaster, like YQ tax was imposed following September 11 incidence in USA. This would significantly increase government revenue earnings.

Tourism sector

The contribution of travel and tourism to Bangladesh economy is currently healthy and forecast to be higher in future. This is despite neglect of tourism in country's development priorities.

As one of the world's largest economic sectors, Travel and Tourism creates jobs, drives exports and generates prosperity across the world. In the annual analysis of the global economic impact of Travel and Tourism of World Travel and Tourism Council (WTTC), the sector is shown to account for 10.4 per cent of global GDP and 313 million jobs, or 9.9 per cent of total employment, in 2017.

The direct contribution of Travel and Tourism to GDP in 2017 was BDT 427.5bn (2.2 per cent of GDP). This is forecast to rise by 6.1 per cent to BDT 453.5bn in 2018. This primarily reflects the economic activity generated by industries such as hotels, travel agents, airlines and other passenger transportation services (excluding commuter services). But it also includes, for example, the activities of the restaurant and leisure industries directly supported by tourists.

The direct contribution of Travel and Tourism to GDP is expected to grow by 6.2 per cent pa to BDT 824.0bn (2.1 per cent of GDP) by 2028.

The total contribution of Travel and Tourism to GDP (including wider effects from investment, the supply chain and induced income impacts) was BDT 850.7bn in 2017 (4.3 per cent of GDP) and is expected to grow by 6.4 per cent to BDT 905.5bn (4.3 per cent of GDP) in 2018.

It is forecast to rise by 6.8 per cent pa to BDT 1,753.1bn by 2028 (4.6 per cent of GDP).

Visitor exports

Visitor exports are a key component of the direct contribution of Travel and Tourism. In 2017, Bangladesh generated BDT 18.4bn in visitor exports. In 2018, this is expected to grow by 6.3 per cent, and the country is expected to attract 209,000 international tourist arrivals.

By 2028, international tourist arrivals are forecast to total 293,000, generating expenditure of BDT35.8bn, an increase of 6.2 per cent pa.

Investment

Travel and Tourism is expected to have attracted capital investment of BDT83.0bn in 2017. This was expected to rise by 8.0 per cent in 2018, and rise by 6.1 per cent pa over the next ten years to BDT 161.8bn in 2028.

Travel and Tourism's share of total national investment will rise from 1.4 per cent in 2018 to 1.5 per cent in 2028.

Tourism gone totally

The hardest hit sector in the world due to situation created by COVID-19 is the tourism. Bangladesh is no exception. For months now all activities related to tourism have gone.

Over a million skilled and unskilled man power are involved in this multi-sectoral tourism industry, like Hotel, Resorts, Amusement parks, Restaurant, Travel Agents, Tour Operators, Internal transportation, Souvenir shops etc. Most of this huge work force are at the risk of going jobless. Billions of taka investments will also go waste.

Government support

It is now uncertain where this dire situation going to end and lead us to. But one thing is certain, there will be heavy causalities, if no concerted effort is made by the government to save the tourism industry.

With a view to salvage this drowning industry, there should be some specific provisions for various stakeholders of this industry in the forthcoming national budget. Some suggestions are as follows:

Include Tourism stakeholders in the SME initiative and offer them all privilege and benefits as an SME.

Waive taxes to the stakeholders for at least one-year period, as there is no business transaction at the moment and nobody knows when business would resume.

Gear up extensive promotional activities in the regional countries, through Bangladesh Tourism Board, when the situation becomes congenial, as regional countries are now mainstay for survival of Bangladesh Tourism.

Allow cash incentives to Travel Agents, Tour Operators who help grow foreign tourist arrivals in the country and generate foreign currency earnings, which would inspire them for more earnings.

Include Tourism specifically in the list of sectors for government incentives, as announced.

In order to make up the short fall of revenue incomes from these concessions, government may consider to impose guest levy of USD 2, for every room guests at International hotels in the country, which many other countries now charge to their guests. This would generate considerable amount of revenue for the government and help the industry to survive.

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