Air India, IndiGo to enjoy duopoly in Indian aviation industry: Nuvama Institutional Equities

Airlines

The aviation industry is moving towards a duopoly scenario where there will be two dominant players--Air India and IndiGo--having significant market share, said Nuvama Institutional Equities.

Due to the grounding of the entire Go First fleet and no new fleet additions planned for SpiceJet, the aviation industry will be left with two major players. Together, these two players--Air India and IndiGo--will have a domestic market share of approximately 80 percent or more, according to the domestic brokerage firm.

IndiGo is seen gaining more market share as smaller players like Go First and SpiceJet face difficulties. This could lead to the industry consolidating to only two or three major players, which would significantly affect competition in the short term, it added.

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Aviation industry is recovering yet, a turbulence could be witnessed in the second half of FY24, the brokerage firm said citing CAPA India, a specialist aviation consulting, research and knowledge practice.

Losses to persist

According to Nuvama Institutional Equities, airlines are expected to continue facing consolidated losses in the range of $1.6-1.8 billion. These losses are mainly attributed to Full Service Carriers, particularly due to their aggressive expansion and restructuring of Air India, along with other factors like high Aviation Turbine Fuel prices and a weak Rupee.

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Passenger Load Factors are expected to stay high at approximately 85 percent, but yields may decrease due to significant capacity increases in FY24. However, despite the dip, yields are still projected to be 28-30 percent higher compared to pre-COVID levels, the brokerage firm said.

Yield to decline

The brokerage firm said resumption of grounded fleets and capacity addition are expected to weigh on yield.

In the aviation industry, it is anticipated that around 75 grounded aircraft will return to service in the second half of FY24. Additionally, the industry plans to introduce 41 new aircraft (excluding the 59 grounded aircraft of Go First), resulting in a total of 725 aircraft by FY24 (compared to 684 as of March 2023, or 577 when accounting for grounded fleets). As a consequence, both the Full-Service Carrier and Low-Cost Carrier segments are expected to face overcrowding, leading to a decrease in yields by approximately 5-6 percent Year-on-Year, Nuvama Institutional Equities explained.

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It added that a decline in yield could also be because of seasonal dips.

IndiGo is expected to dominate additional capacities with an increase of over 40 aircraft, while Air India is projected to add more than 50 aircraft, further boosting its market share, the brokerage firm said.

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