Airlines struggle to stay afloat

Considering cost-cutting measures, loans and selling aircrafts 

Phub Dem  | Paro

Like everywhere around the world, the air travel business in the country has been hit the hardest from the Covid-19 pandemic. No sooner had the news of virus became widespread, travel demand of the two airlines in the country plummeted.

With air travel nearly grounded by the new coronavirus, the airlines are now bleeding money. Drukair’s number of flights decreased by 45 percent in March and it further reduced to 87 percent in April. The airline started feeling the brunt of Covid-19 as early as January this year with passengers demanding cancellation refund.

As of May end, Drukair recorded 8,562 cancellations amounting to Nu 335 million (M).

The company, according to the chief executive officer, Tandi Wangchuk had been doing better until March compared to last year. The revenue generation reduced by 83 percent in April.

The company further reworked on their fiscal year budget with the outbreak of the virus. It reduced the initial approved budget of Nu 5.5 billion (B) to Nu 1.32B, which is a decrease by 76 percent.

Drukair’s profit projection before Covid-19 was about 290M after tax, but the revised projection shows a loss of Nu 1.23B. The company is running a cash shortage of Nu 1.5B that includes the loss of Nu 1.23B and refund amounting to Nu 335M.

“Drukair is looking for loans,” said the CEO.

Tashi Air, the private airline trading as Bhutan Airlines is also facing a similar scenario.

Besides both of its aircrafts being on lease, the company has to pay a huge rental and other charges for the relevant agencies. Tashi Airlines’ CEO, Phala Dorji said that the company have not paid landing, parking, aeronautical and navigation charges to other countries.” He said that the sustainability of the company would depend on the situation of the pandemic and the government’s tourism policy. “We are sustaining at present, but we have to find alternatives if the situation remains the same.”

Bhutan Airlines did not share the figures reasoning that it should route through the board of directors and the chairperson.

 

Interim measures

Both the airlines took soft working capital.

Drukair took term-based soft working capital of Nu 215M at a concessional rate of five pecent for three months (April to June) from the Royal Monetary Authority’s Covid-19 monetary measures.

The government waived off airport rentals—airport offices and parking fees—for three months.

CEO Tandi Wangchuk said that the company was grateful for the interim measures. But he said that it was a huge financial challenge for a company that is running into a significant loss. “We are worried about our survival. Besides we have no idea when the country will open to tourism.”

Devastating as the downturn has been, the future is even bleaker. For now, airlines are preparing for a long, lonely fight for survival.

To stop the bleeding, airlines have made deep cuts to every imaginable expense, freezing travel, training, workshops and, cutting down capital expenditures.

Although the company is running into loss, Drukair hasn’t laid off any employees or slashed salaries.  If the hibernation continues, Drukair has signalled to reduce hiring foreign pilots at the end of this year.

Drukair might reduce the number of aircrafts as there are no airline businesses, CEO Tandi Wangchuk said. “The measures are for a longer-term, as travel business would take time to revive immediately.”

He said that the company was exploring ways to reduce expenditures and would reduce the number of older aircrafts, as the new ones are efficient and require low maintenance cost.

Bhutan Airlines, in the meantime, reduced the employees’ salary by 50 percent to ease the financial burden since April this year. Starting this month until August, the management decided to pay Nu 12,000 per month to its employees.

The company will re-structure the salary starting this month to reduce the burden on His Majesty’s Relief Kidu Fund and to help employees.  “The company will further review the salary structure as per the situation.”

No employees were laid off so far.

Phala Dorji said that the company was grateful to the government for the timely intervention including loan deferment and waiving off the airport rentals. He added that the government was also considering waiving the navigation charges.

Drukair is operating government’s relief flight from around the world and Tashi Airlines operate a few chartered and cargo flights. However, there was no profit, as the flight has to fly empty out of the country, according to officials. The ticket charge of relief flights covers only the operational cost.

Additional reporting by Thinley Namgay

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