The grounding of Go First will lead to a rejig of the domestic aviation market, much like what happened when Jet Airways went down in 2019. Go First has suspended all flights for three days beginning Wednesday May 3, claiming that half its fleet of aircraft was grounded due to a lack of engine supplies from Pratt & Whitney and a severe cash crunch. The airline has filed for voluntary insolvency resolution with the National Company Law Tribunal (NCLT) but plans to continue operations subsequently.
Fewer Choices For Consumers
Nearly eight percent of India’s domestic air travellers will have to look for alternatives to Go First flights to reach their destinations, an opportunity competitors are rushing to seize. The grounding of Go First means fewer choices for air travel. India’s airline industry has seen significant consolidation in the recent past, with Tatas taking over Air India, and four airlines will eventually come under the Tata umbrella. As and when Vistara’s merger into Air India gets all regulatory approvals, India will be left with a single full-service airline. And a fourth of the domestic market will be with the Air India group. IndiGo commands more than half the market. That leaves just about a quarter of the market for all other players.
Windfall For Competitors
The flux in the market notwithstanding, domestic air travel demand remains robust. Go First’s grounding also offers a chance to competitors to grab precious airport slots and earn higher yields (revenue per passenger) in an industry notorious for unsustainable costs and pathetic earnings. No airline, low-cost or full-service, is likely to let this chance slip by, just as it happened when Jet Airways began tottering in the spring of 2019. When Jet reduced daily flights significantly, before the eventual grounding in April, rivals IndiGo and SpiceJet had grabbed the opportunity to rake in the moolah. Both rival airlines had reported a significant improvement in earnings in the seasonally weak March quarter of 2018-19. Their market share too rose dramatically following Jet’s demise.
Additionally, airline operators have pricing power due to robust demand. An analysis by the Centre for Asia Pacific Aviation (CAPA) had said last month that domestic traffic could increase by about 20 percent this fiscal over FY2023 to surpass 160 million passengers. With the number of Indians planning to take a domestic flight continuing to stay strong, it is no surprise that competitors may have already begun pulling out all stops to corner the market served by Go First.
Troubled Competitor Perks Up
Significantly, just a day after Go First was grounded, at least one other low-cost carrier (LCC) has declared that it will get 25 of its grounded aircraft airborne now, with some help from government loans under the Emergency Credit Line Guarantee Scheme (ECGLS) and remaining funds coming through internal accruals, totalling to Rs 400 crore. While the process of getting grounded aircraft to fly again will be a slow one – it could take up to three months for all the planes to be back in service – this would significantly reduce the capacity constraint caused for Go First grounding.
Market leader IndiGo is also expected to mount additional flights on routes where Go First had a significant presence. It already has a robust aircraft arrival schedule. IndiGo has also seen the grounding of about 30 aircraft due to the same A320NEO engine supply issues from Pratt & Whitney. However, the impact of supply problems was disproportionately higher for Go First as nearly 90 percent of its fleet was propelled by these NEO engines.
Fares to Soar
Despite all the extra capacity seemingly coming into the market through competitors, it is unlikely that the grounding of Go First fleet will leave domestic flyers unscathed. About 100 aircraft of India’s airlines are on the ground and CAPA does not expect many to take to the skies in the current quarter.
As demand outstrips supply, fliers will have to shell out significantly more for their domestic air travel. Some fliers could actually opt to travel by train due to stiff fare hikes and lack of seats on planes. Spot fares on some of the routes frequented by Go First have already risen up to 43 percent for the three days from May 3 to May 5, since news broke about Go First’s troubles. With fares scaling new peaks just when the summer holiday season has begun in many parts of the country, perhaps some domestic travel plans may become a casualty.
Sindhu Bhattacharya is a journalist based in Delhi who writes on a range of topics in business and economy. Views are personal, and do not represent the stand of this publication.
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