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GoAir IPO: What investors should know about the airline’s core operations

GoAir finds itself in a unique position as it filed its DRHP with Sebi on May 14. But that has more to do with what its competitors IndiGo and SpiceJet did than anything by the airline.

May 14, 2021 / 12:27 PM IST
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As it has happened in the past, GoAir finds itself in a unique position as it filed its DRHP on May 14. This unique positioning is not because the airline did something exceptional but rather its competitors.

GoAir, rebranded on Thursday as GO FIRST, is now one of the only two true low-cost carriers (LCCs) in the country, the other being AirAsia India. While AirAsia India is nearly half its size, the recent control changes at AirAsia India and the outcome of the Air India bid by the Tatas will dictate the future of AirAsia India.

On the other hand, SpiceJet and IndiGo, proponents of the LCC philosophy with a single aircraft fleet type, offering unlimited flexibility, ability to swap aircraft for operational needs, reduce training and certification costs, moved away from the core business model after preaching about it for years.

With its 50+ aircraft and the older A320ceo on its way out, GoAir is poised to be the only all NEO carrier in Indian skies and would operate the modern and cost-efficient aircraft. The airline had placed two orders of 72 aircraft each in the past.

Also Read: GoAir IPO: What the Wadia airline will use funds for, risks, competition, and other key details

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A majority portion of airline revenue comes from ferrying passengers from point A to B. A passenger is also a captive source of ancillary revenue - be it additional baggage or food! And thus at the heart of any airline’s money-making proposition is its route network and revenue management skills along with the ability to manage costs.

Opportunities and Route Network

The airline has been punching above its weight and has the highest ratio of domestic market share to domestic slot share. Over the last three years, GoAir had a ratio of domestic market share to slot share of 124 percent, 126 percent and 118 percent while that of IndiGo stood at 117 percent, 111 percent and 108 percent!

The airline has a considerable presence at many airports but has more than 50% share by seat capacity at Kannur and Leh. While Kannur is a recent airport addition, Leh has extremely high yields seasonally and the shortage of airport infrastructure and limited operating window means that any dominant position at Leh would help airlines dictate fares.

The airline was a pioneer in route launches for 16 sectors which include flights to leisure destinations like Port Blair from Mumbai, Bengaluru and Hyderabad and to Leh, Srinagar and Jammu from Mumbai. It also has the largest share of capacity on 17 routes in the country. These include routes to leisure destinations from Mumbai, Delhi and Bengaluru - the top three airports in the country.

A part of this positioning comes from its grandfather rights over slots in the country. The airline has seen quite a bit of groundings of rivals - be it Kingfisher or Jet Airways and when the slots were distributed benefited in bits and pieces which helped the airline grow and have an effective hub at both Mumbai and Delhi.

This is evident from the market share it has at Mumbai (14%), Delhi (12%), Pune (14%), Ahmedabad (25%) and Goa (14%). Slot constrained airports are a major challenge for newer competition to expand and these historic rights help GoAir not lose its competitive advantage. The airline served 39 airports in 2020.

Also Read: Go Air IPO: Here are important risk factors to the airline's growth and future plans

The airline has held onto a good boy” sort of image with the airport operators having not resisted multiple moves at Mumbai - from T1B to T1A and back and splitting operations between T1 and T2. Likewise, when Delhi International Airport wanted to start expansion and renovation work at T1, GoAir was the only one to take up the offer to shift to T2 and was the first one to do so while rival IndiGo knocked the doors of the court.

The airline plans to induct eight aircraft in this fiscal and 14 each in the next two fiscal years.

Tail Note

While route and revenue are important pillars, the most important pillar is manpower. Both IndiGo and Spicejet have seen leaders at the helm of departments for years and sometimes over a decade and that is completely missing at GoAir. This possibly leads to a new leader every now and then and coming with a philosophy completely different than the previous one which makes a long term goal - challenging one to achieve.

However, the ULCC part is debatable since unlike the western countries where unbundling is common, in India the regulator has its say and an unbundled offering by GoAir is no assurance that competition will not follow the suit - without calling itself “ultra” low cost.
Ameya Joshi runs the aviation analysis website Network Thoughts.
first published: May 14, 2021 12:25 pm

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