The next few years are crucial for the airline industry in India. Consolidation at TATA group, with possible addition of Air India in its kitty, survival plan of SpiceJet, birth of Akasa and the challenging conversion to Ultra-Low-Cost Carriers (ULCCs) for Go First will all be aimed at the dominance of IndiGo.
IndiGo has been a formidable player and a fierce competitor in a market which has been a graveyard for airlines. The airline has crossed the fleet of AirAsia Group and took most deliveries from Airbus in 2020 — the most difficult year for aviation.
IndiGo has also been on a renewal spree, adding the next-generation NEO aircraft to its fleet and retiring the CEO aircraft as soon as possible. Many aircraft are sitting at various airports across the world and would be soon redelivered.
Amidst this melee, the Kalrock-Murari Lal Jain consortium is getting into the next level of restarting Jet Airways and the Rakesh Jhunjhunwala-backed Akasa is investing in people to take it towards No Objection Certificate (NOC) and Air Operating Permit (AOP). Be it an incumbent or a new airline, the discussion around competition revolves around IndiGo, the country’s largest carrier by fleet and domestic market share.
Indigo's total fleet at the end of each quarter (Graphic: Moneycontrol)
How is the fleet moving?
In October 2020, Rono Dutta, IndiGo’s Chief Executive Officer, told analysts during a post-earnings conference call that the country will see a slight reduction in fleet in 2022 and would be up again in 2023. Dutta also mentioned that the fleet count will be stagnant until then.
The fleet count had indeed been stagnant for the last couple of months, with a new aircraft only being used as a replacement of an older one most of the time. So far, in 2021, the airline has taken delivery of 25 aircraft, comprising seven A320neos, 13 A321neos and five ATRs. For the better part of the pandemic, the fleet has been stagnant and will remain so until 2023.
What does this mean?
In a market where capacity share dictates market share and a strong market share ensures pricing power, it would be a respite for all others, albeit momentarily. The next few years are crucial for the airline industry in India. Consolidation at TATA group, with possible addition of Air India in its kitty, survival plan of SpiceJet, birth of Akasa and the challenging conversion to Ultra-Low-Cost Carriers (ULCCs) for Go First will all be aimed at the dominance of IndiGo.
The market, as well as fleet, has doubled in the last 10 years, and could double further in the next decade but at what cost is the question airlines, including IndiGo, need to answer.
A stagnant fleet of IndiGo does mean that this is the opportunity for everybody to catch up. IndiGo also intends to focus on the international side, as per its own admission. This could give time for the TATA group to streamline its fleet and business plan for AirAsia India, which would include rebranding and looking at possible synergies for Vistara and Air India’s long haul-network.
The group could also look at AirAsia India and Air India Express, including opting for one fleet type, assuming TATA emerges the winner in Air India privatisation.
It gives SpiceJet a chance of survival, by inducting B737 MAX and retiring older aircraft, and for Go First to improve its operations as it transforms to a ULCC. More importantly, it will be an opportunity for others to get better slots and additional night parking at airports across the country since IndiGo won't be asking for additional ones all the time. This is what will be crucial for Jet Airways 2.0 as well as Akasa, assuming both take to the skies in the next 6-12 months.
But there already is a large fleet to chase competition!
While prima facie, this looks exciting, one cannot forget that the airline already has a formidable fleet and the largest in the country. This is coupled with an equally formidable order book. Being the largest airline in the country, it is very easy for IndiGo to deploy a flight or two, to take the competition head on. This might mean a significant percentage of capacity for competitors but a miniscule one for IndiGo.
IndiGo is known to not take competition lightly. Case in point being how it chased flyBig from the central Indian market. The airline launched Ahmedabad-Bhopal flights almost overnight and ditto for Ahmedabad-Indore. This meant that flyBig, which had planned virgin routes, was being chased by the most dominant player and since these routes weren’t matured yet, it needed airfare-led stimulation, which clearly wasn’t possible due to the fare caps in place.
But, in effect, this meant that 67 percent of flyBig’s network was being chased by IndiGo and that was less than 1 percent for IndiGo. This is what scale can achieve.
Akasa will have higher costs to begin with. Even the likes of AirAsia India, which repeatedly speak about a breakeven within a year and much more in the next few years, have not been able to make ends meet after seven years of operations.
The respite from fleet addition is also a time for IndiGo to sweat more and fine-tune its plans. The pandemic has seen all airlines revisit route networks and practices. The country has more connections at a lower flight count than it was during pre-COVID19. The network effect of this passenger mix will mean a rich data source to start new flights and connections.