Mega orders by Air India, IndiGo point to growing optimism, heightened competition

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In a first for Indian aviation, IndiGo and Air India have ordered close to 1,000 aircraft from Airbus and Boeing in the first six months of this calendar year. This is a big feat for the Indian aviation sector.

There are many similarities between Air India's February order of 470 aircraft from Airbus and Boeing and the 500 Airbus aircraft order placed by IndiGo on Monday.

According to Nripendra Singh, Global Director, Aerospace and Defence, Frost and Sullivan, the similarities include optimism about the growth of the Indian aviation market, growing competition to capture domestic market share and capitalise on its expected growth, and an effort to bridge the gap left by Go First suspending operations.

It is widely accepted that air travel grows at twice the pace of a country’s gross domestic product (GDP). With India logging around 7 percent GDP growth, aviation is set to grow at about 14 percent annually. This is already reflected in the air passenger numbers. In May this year, domestic airlines flew 1.32 crore passengers, a jump of 15.24 percent over the same period of the previous year.

Satyendra Pandey, Managing Partner of Aairavat Technology & Transport Ventures Private Ltd, adds that both airlines' orders take into account fleet renewal and growth.

He adds that the IndiGo order, with its fleet type, will enable the airline to leverage economies of scale and deliver on competitive costs. "Air India, on the other hand, is catering to a mix by virtue of its business model, which has both full-service and low-cost airlines."

"While Indigo has ordered 500 A320/321/321 XLR, Air India's mix consists of 140 A320 and 70 A321 plus 190 Boeing 737 MAX 8/10 (a 400 narrow-body aircraft). The Boeing order includes the option for an additional 50 737 MAXs. Both orders are in the narrow-body segment, which has unique characteristics," Pandey says, adding that the A321XLR, which is an acronym for extra-long range and a part of the IndiGo order, enables the airline to fly farther, "as far East as Japan and as far West as London on a non-stop basis. And planning has already been completed for the first set of destinations, placing Indigo well ahead of the curve".

But there are also differences between the two orders. According to some, IndiGo’s order seems to be better thought out. For example, Captain Eng. Gustav Baldauf, GB Aviation Consulting, says that IndiGo is clearly sticking to the rules of a low-cost carrier (LCC), keeping the system simple by just ordering a more or less single type of aircraft for replacement, expanding its home market, and soft transitioning into long-range markets without taking the risk of losing the strong market leader position in the home market.

"History shows that airlines flying international and forgetting to handle their basic home market and losing market share start running into trouble with the feeder system and finally collapse (PANAM, TWA, Jet Airways)," he says, adding that IndiGo’s order seems to tick all these boxes quite clearly, not endangering the LCC business model but carefully expanding in a new facet of long-range LCC. Baldauf was Air India’s Chief Operating Officer (COO) in 2011, when the airline was still being run by the government.

He also adds that the IndiGo order takes all the advantages of a big and historic order with a single aircraft manufacturer (with a lot of concessions from that side), which will give the airline the highest support and attention from Airbus.

A person representing a competing airline in India adds that IndiGo returns aircraft after five years to the lessor, thus ensuring a steady stream of new, efficient aircraft in its fleet that is fed from a constant supply chain whose price is also negotiated and sealed in advance.

Some others, like Singh, maintain that while IndiGo’s focus is still predominantly on the domestic market, along with the gradual expansion of its international market, Air India’s focus is more on increasing its footprint in the international space.

"While Air India has yet to leverage the synergies of the consolidation of three airlines’ mergers recently, Indigo has a relatively stable structure organically in the current environment, where its focus will be more on efficiencies," he says.

Air India has ordered different types and sizes of aircraft to fulfil the vision it has developed for the airline’s future. "A highly complex system with different business models (full service, worldwide operating carrier, and an LCC for the national and international markets within a flight time range of four to five hours). Air India is competing strongly with the UAE carriers in the full-service market as well as with the LCC branches of those airlines.

Hence, it will have to develop both business models independently but also use the synergies and advantages of common operational, commercial, financial, and strategic services from the common headquarters. So, change management will be a key issue for Air India," Baldauf says.

Baldauf also provides a word of caution for Air India. "As the mergers are still under construction and the new organisation is not yet in place, there is the risk of being delayed by internal quarrels, losing focus on vision and targets, and losing market share in this fast-growing environment. Any weakness in these change management processes will give advantages to competitors."

"Air India’s order is a long overdue action, together with the development plan to get the feet back on the ground and the last chance to survive if they do the right things now. IndiGo’s order is a clear and self-confident sign of an airline showing its strengths and conviction to lead the market without having to struggle for survival," Baldauf adds.

The person working for a competing airline adds, Air India is in for a far rougher ride, and IndiGo will be at the forefront of that.

While expressing his disappointment at IndiGo not ordering wide-body aircraft, Mark D Martin MRAeS, Chief Executive Officer (CEO) of Martin Consulting adds that IndiGo's order will be very unlike the Air India order as the latter will deploy all the 470 aircraft with no spares for replacement after 10 years of revenue service.