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Aviation and Hospitality Sectors in Crisis : A Rescue Call

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Aviation and Hospitality Sectors in Crisis : A Rescue Call

The aviation and hospitality sectors are struggling. Aircraft are grounded, rooms are empty and only relief packages can help them endure.

--By Tamish Giri

On April 25, the Nepal government announced a further extension and suspension of all domestic and international fl ight operations until May 15, as a precautionary measure to stop coronavirus (COVID-19) from spreading. When the announcement came from the High-Level Coordination Committee for the Prevention and Control of COVID-19, fl ight operations had already been disabled for almost a month, excluding emergency fl ights for rescue and medical supplies.

So far, wide-body aircraft belonging to Nepal Airlines have been partially functional while all aircraft belonging to other carriers have been grounded since March 22, the start of the suspension. However, there is still no certainty that the suspension will end onMay 15.

These suspensions to stop the outbreak have caused the largest slump inNepal’s aviation industry which has led to an unprecedented loss of business.

Yograj Kandel, spokesperson of the Airline Operators Association (AOAN) of Nepal informs that the domestic aviation industry in Nepal has already shrunk by 60-70 percent. “The business will shrink by 95 percent until the virus is completely contained and fl ight operations resume”, he informs.

In 2019, the domestic aviation (both fi xed and rotary-wing operators) business grew by 12 percent making a total transaction of Rs 8.52 billion. However, the sector has been pushed into jeopardy by the unprecedented suspension of air services.

According to Kandel, the business of helicopter operators has already declined by 98 percent, while short take-off and landing routes have slumped by 80 percent and trunk routes have declined by 60 percent. According to Birendra Bahadur Basnet, managing director of Buddha Air, with the the COVID-19 pandemic disrupting the global economy, the aviation industry has been one of the hardest hit sector. “Buddha Air, in its 23 years of service, and the aviation industry as a whole, has never seen such an impact.

Many bigger international airliners have collapsed and are seeking a bailout from the government,” he says.

On average, Buddha Air made estimated transactions of Rs 600 million every month. The airline was forced to cancel its purchase agreement of a new ATR aircraft due to the uncertainty led by the virus. “However, ATR has agreed to reimburse our instalment which we had paid them as a guarantee for the aircraft,” shares Basnet.

Likewise, Vijaya Shrestha, vice president (Administration) at Himalaya Airlines informs that his company has lost its entire business for March and April due to the suspension of fl ights. He believes that the aviation industry will need two years to recover from the impact of the pandemic.

With the government extending the suspension, airline operators are struggling to sustain themselves. Entire aircraft are grounded and operators have to pay parking, insurance, bank interest, staff salary, and maintenance costs. This is an alarming situation for both operators and staff involved. The Nepali aviation industry provides jobs to 4,000 individuals approximately. “All the jobs are intact so far but we fear that 75 percent of them are in danger,” says Kandel.

However, Shrestha suggests the government should waive taxes and reduce the price of air transportation fuel as airlines are struggling. “The air-fuel is way too expensive and the government charges the price according to the international market price to help us sustain,” states Shrestha. He also suggests the government to waive lease tax on aircraft.

“Civil Aviation Authority of Nepal (CAAN) should simplify the leasing procedure of the aircraft. The repayment scheme is also crucial. The government should provide repayment facilities to airlines and postpone the bank interest and loan instalment for two years,” Shrestha opines. However, Basnet suggests that Nepal is a small economy, and the government here is completely dependent on tax revenue, so, he does not expect much in terms of relief.

Like other airline operators, he wants to see a reduction in the air-fuel price to help the airline industry survive. “AOAN has sent a request letter to Nepal Oil Corporation (NOC) to reduce the price. The current price charged by NOC is way too expensive compared to the international price. Likewise, CAAN needs to waive the parking charges of all aircraft,” says Kandel.

The government so far has instructed the banks for rescheduling the instalments and interest on loans for April. “That is the only relief that the government has provided so far to address our issues,” expresses Kandel. AOAN is trying to minimise the fi xed cost of each airline by deducting the employee salary scales and requesting the Insurance Board to convert the insurance coverage policy on aircraft to ground insurance coverage instead of full fl ight risk coverage. “We don’t have bigger expectations from the government because they are struggling to address the crisis and Nepal is in a weak economic condition,” mentions Kandel.

AOAN is asking for a recovery fund: refi nancing of loan from banks on the same mortgage at a lower interest rate to restart the operations of airlines. Likewise, the association is also seeking tax holiday, waiver of landing and parking fees for a year. “We are optimistic that the government will address these demands in the upcoming budget. They must fund us on a cheaper and easy way to keep the aviation sector alive,” Kandel informs.

Meanwhile, airline operators will be targeting Nepali clients to expand the business and new packages to sustain their business. Like aviation, the suspension of fl ight operations has also aff ected the hospitality business in Nepal directly.

In Nepal, the majority of the hotel business is directly dependent on foreign tourists. Lockdown in this instance has additionally jeopardised the hospitality business as hotels are running out of customers.

Shreejana Rana, president of the Hotel Association of Nepal (HAN) informs that the situation is grim for the hospitality business as 99.5 percent of the hotels have shut down. Hotel Association members are bearing a monthly loss of around Rs 1 billion 800 million due to the pandemic. “If the situation persists, the sector will incur even further losses,” she says.

The overall investment in the Nepali hospitality sector is believed to be over Rs 1 trillion which comprises of direct and indirect contributions that include the formal and informal sectors - ranging from star hotels to homestays across the country. The hospitality sector was growing both physically and economically, and we were predicting a rather hopeful year. COVID-19 has taken us all off -guard and shocked the entire industry,” Rana adds.

Since there is not even a penny trickling into the hospitality sector, hotels are struggling with their fi nances. Newly built hotels have been troubled the most as they are facing challenges for loan payments. And smaller hotels are struggling to pay their lease. All hotels are facing problems to pay staff salaries.

Sunit Agrawal, vice chairman of MS Group and operations director of Marriot Kathmandu says that the COVID-19 crisis has tremendously affected both the operation and business transactions. “Like every fi ve-star hotel in Nepal, we are dependent on foreign tourists and the days ahead are going to be challenging for us to sustain because we do not see foreigners travelling for a longer period due to the economic impact of the coronavirus,” informs Agrawal. The hotel’s management is concerned and worried about the sustainability of their business. “Full phase operation is completely uncertain as we don’t know when the crisis will come to an end,” he adds.

Similarly, Reena Sherchan, director of sales at Aloft Kathmandu, says that the hotel’s room occupancy currently hovers at a meagre six percent. “Earlier we had projected of 65 percent occupancy for April,” she shares.

As estimated by HAN, the hospitality sector has suffered a loss of close to 90 percent to date compared to the business in the whole year of 2019. Rana informs that the hoteliers are currently facing an anxiety-fi lled environment with jobs on the line and businesses at stake. “While it is evident that it will not be possible for the sector to recover in 2020, at this moment, even normalcy in 2021 remains a big question mark,” she expresses.

Currently, hotels are operating with a skeletal number of employees: security personnel and less than five percent of employees for maintenance purposes. “With an estimated 95 percent of employees on leave and almost zero occupancy, we have projected around 60-70 percent of disturbance to be felt in employment as a result of this crisis. And, even once the lockdown is lifted and businesses reopen, the sector will have to focus on survival first, which may further affect employment,” Rana opines.

Experts suggest government support is integral for the sector to survive and revive in the current context. HAN has been collecting feedback from member hotels on losses incurred and other pertinent issues and is preparing a common agreement together with other private sector associations to provide to the government. The association believes it will help the government to take strong and swift decisions.

“We are in discussions with the Nepal Rastra Bank. These series of high-level meetings, discussions, and lobbying will help us yield a positive outcome for the sector, which will include the introduction of special policies to preserve and support hotels during such times of crisis,” says Rana.

Hoteliers are looking for proactive support from the government in this time of crisis. “So far, the government has announced to provide a 10 percent discount on bank interests for March. However, the banks are charging full interest informing that they will adjust and reimburse the discount amount in the days to come,” says Agrawal.

To face the current crisis, hoteliers stress that a triparty agreement between the government, employer, and employees is essential. “We have been seeking for employee support and employer support. Employee support entails government support to help fund employee salaries. Employer support entails moratorium support including loan refi nancing, rescheduling and restructuring facilities, interest rate reductions, tax and utility tariff waivers and lease rental waivers,” Rana adds.

Looking into the various relief packages hoteliers in different countries have received from their governments, HAN believes these are some of the measures that are critical to helping its member hotels survive and revive postpandemic. “While till date, the government has only made a generic industry announcement without specifically prioritising the hospitality sector, we remain optimistic that together we can soon come to a fruitful consensus and move forward accordingly,” Rana mentions.

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