Driven by new airlines, the Indian aeronautics sector could take off in 2022

More than 18 months after the COVID-19 pandemic crippled the economy, the aviation sector has yet to fully recover. But the latest data from the Directorate General of Civil Aviation (DGAC) shows that things could be on the rise.

Between January and October 2021, national airlines carried nearly 6.21 crore in passengers, up from 4.93 crore in passengers a year ago. That’s a jump of almost 26%, albeit from a low base of 2020.

As COVID-19 cases in the country continue to decline, the pace of vaccination has also increased, the economy is expected to continue to recover, as is aviation and travel. October-December is an important quarter for the aviation industry as many people travel during the holiday season.

So domestically things are definitely improving.

ALSO READ: India will resume regular international flights from December 15

“At first glance, Indian airlines have emerged from the doldrums as domestic passenger numbers surpassed 90% of pre-COVID levels during the peak holiday season. This trend should continue until December, ”said Vinamra Longani, operations manager at Sarin & Co, a law firm specializing in aircraft leasing.

Aviation consultancy CAPA India had previously forecast that Indian airlines would carry between 8.0 crore and 9.5 crore in passengers nationwide during the current fiscal year ending in March 2022. Although it maintained that prediction, he now considers the actual figure to be closer to the upper end of the range, compared to the lower end, which he had expected earlier.

Building on the “stronger than expected recovery in domestic traffic”, CAPA India reduced the overall loss it expects the industry to record this year to around $ 3.5 billion to $ 3.7 billion. dollars, compared to the $ 4.1 billion it had forecast earlier.

Even though internal affairs have resumed, Indian airlines still face turmoil on international routes. In recent years, Indian airlines including Indigo, SpiceJet and Vistara have all expanded their operations and added flights to several overseas markets.

However, many countries still do not allow foreign travelers fearing a further spread of COVID, and much of international travel has been limited to temporary “bubble” agreements between countries. As Singapore begins to open up, Malaysia and Thailand remain closed for flights from India as there are no arrangements for air bubbles.

So, as domestic air travel has moved closer to pre-COVID levels, the restrictions will continue to impact international travel for at least the next two months, analysts say.

“All major Indian airlines except Air Asia India had overseas operations before COVID. So, until these regional markets are not opened, there will be spare capacity, which Indian airlines will continue to struggle to fill, ”said Longani.

CAPA India expects international traffic from India to be between 1.6 crore and 2.1 crore this year, with the potential to rise if international flights resume according to pre-COVID schedules.

The pandemic has had a huge impact on the sector. The aviation consultancy says Indian airlines are expected to raise at least $ 1 billion for the remainder of the current fiscal year, with SpiceJet alone needing nearly $ 400 million.

GoAir (now renamed GoFirst) is expected to go public this year, with an initial public offering of 3,600 crore (approximately $ 490 million).

Over the past decade, India’s aviation industry has seen several airlines shut down – Jet Airways and Kingfisher were among the most notable, but several smaller airlines like Air Costa, Air Carnival and Air Pegasus have also ceased their operations. activities.

In that sense, 2022 could well be another sunrise for the Indian aviation industry with two brand new airlines – Akasa (backed by billionaire investor Rakesh Jhunjhunwala) and Jet Airways (now owned by the Kalrock Jalan consortium) – about to take off.

Earlier this month, Akasa placed orders for 72 Boeing 737 Maxs with the aim of restarting operations from next year. The deal is valued at nearly $ 9 billion at list price. Akasa, which is led by former Jet Airways CEO Vinay Dube and also has former Indigo Chairman Aditya Ghosh on board, is targeting the Ultra Low Cost Carrier (ULCC) space.

“Akasa negotiated during COVID. Their cost of acquiring aircraft, their cost of acquiring maintenance contracts, their cost of acquiring people and other services will be significantly lower. That they can maintain it as their size increases will be key, ”said Kapil Kaul, CEO of CAPA India.

In addition, if they are considering a ULCC strategy, then their revenues will be critical as the tariffs will be lower and the focus will have to be on ancillary revenues, he added.

Elsewhere, Jet Airways is also expected to take off in a brand new avatar from the January-March quarter. The Kalrock Jalan consortium obtained National Company Law Tribunal (NCLT) approval to acquire Jet Airways in June 2021 and the new owners plan to have more than 50 planes in three years and more than 100 in five years.

The new airlines will be good for passengers. People will have more choice, due to competition, and on the routes these airlines will serve, fares are also likely to drop. The other winner will be the industry itself, as the new airlines will create thousands of new jobs.

Both airlines have huge ambitions and capital. However, gaining a foothold in a market, of which only Indigo controls half, will not be easy.

Between January and October, Indigo alone carried 3.41 crore in passengers and held a market share of 54.9%. It was followed by Air India with a 12.6 percent market share and SpiceJet 10.6 percent. Among the other key airlines, GoAir had an 8.1 percent market share, Vistara a 7.2 percent share and Air Asia India 5.8 percent.

Indigo already has around 275 aircraft and operates more than 1,400 daily flights. SpiceJet, the second largest player, is expected to resume aircraft additions and plans to introduce 50 Boeing 737 Maxs by 2022-2023.

With the acquisition of Air India by Tatas, the group will also strengthen its position in the market. Vistara and Air India will together have around 19% market share, based on figures for the January-October period. The new owners are expected to look to increase Air India’s interior capacity.

“The new Air India led by Tata Sons is likely to have a decisive impact, perhaps in the 2024-25 fiscal year,” Kaul said.

Analysts believe that Akasa and Jet Airways 2.0 should accelerate and grow rapidly if they are to gain relevance in the market.

“At least initially, it will be a David versus Goliath battle, especially when you have a market leader who owns over 270 planes. Therefore, the speed with which the rise of new airlines will be essential, ”said Longani.

With the new airlines, competition is expected to intensify in the Indian market. CAPA India says that since there are many airlines with a small market share, there will be risks of consolidation in a post-COVID world.

“We have a fragmented market. After Indigo, there are so many players with 8 to 10% market share. It is untenable in a new structure. In the domestic market, Indigo has more aircraft than any other combined. So you would need a solid number two with 25-30% stake to restore some balance, ”Kaul said.

Overall, while there is still some uncertainty about how things will play out in the January-March quarter, which is typically a lean season, 2022 is expected to be a much better year for the industry, according to analysts.

“Provided India doesn’t have another wave of COVID, next year should be a great year for passengers as they will have a plethora of airlines to choose from and hopefully cheaper fares. . It will be a great year for those who may have lost their jobs or aspire to join the aviation industry, as there will be a lot of job creation due to the entry of new players, ”said Longani.

The airline industry went through severe turbulence in 2020-2021. He hopes the skies will be clear in the coming year.

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