The Singapore air show is not known for its mega-orders. Scheduled early in the year, any last minute orders from 2013 would have come out in December. The show is also firmly focused on Southeast Asia. It came as a great surprise, then, that one of the show’s biggest orders came from an Indian carrier. Even more surprising was the carrier making the order, Air Costa, and the aircraft it signed up for - 50 Embraer E-Jet E2s with purchase rights for 50 more.
Although India is often touted as one of the world’s most promising future markets for aircraft, when compared to regional rival China it is a laggard in orders, and even moreso on aircraft deliveries. In any given month, data from Flightglobal’s Ascend Online database shows India receiving about three to four aircraft, mostly narrowbodies.
Not to say that India doesn’t have potential. “South Asia’s demographics are highly favourable to the growth of air transportation,”says Boeing in its latest Current Market Outlook. “The region has a large population (totalling 1.7 billion people in 2012), and the share of this population entering the workforce is growing. The region’s real GDP is forecast to grow an average 6.6 percent per year between 2012 and 2032, by the end of which period, India could have the world’s fourth-largest economy if current trends toward economic policy liberalization, market reform, and investment continue.”
Ascend shows that there are 375 airliners operated by Indian carriers, and firm orders for 399 aircraft. Chinese operators, by comparison, have 2,038 airliners in service, and firm orders for an additional 728 aircraft.
India's commercial airliner fleet - 375 aircraft
Of India’s in-service aircraft, 285 are narrowbodies. Widebodies account for just 49 aircraft, followed by turboprops with 37. Regional jets account for just four aircraft – hence the stir caused by Air Costa’s Singapore surprise order. In regard to firm orders held by Indian carriers, narrowbodies again dominate with 316, followed by regional jets with 51 (all for Air Costa). Indian carriers have firm orders for just 32 widebodies.
“There are around 40 ATR42 / 72 / Bombardier Q400s currently operated in India and these are flown in regional networks with demand profiles that cannot sustain multiple daily 150 – 180 seat services,” says Rob Morris of Flightglobal’s Ascend advisory service.
“To some extent these regional networks evolved as part of a regulatory process which required airlines operating on trunk routes to have some element of their fleet capacity serving smaller “social” routes. The turboprop networks have sustained because their lower operating costs can render some of these routes economic. The challenge for Air Costa will clearly be to manage their unit costs in the current and future competitive environment to deliver the profitability that appears to date to have eluded previous operators of regional jets in India.”
He notes that other operators have tried to operate regional jets in India over the years, but none have succeeded.
“In pure demand terms there are a large number of potential routes where passenger potential is well suited to regional aircraft,” he says. “But the current yields in India, which has become a highly competitive market with pricing set on trunk routes by low cost airlines, doesn’t appear to presently be suited to regional jet economics.”
On step up the ladder from regional jets are narrowbodies, which dominate India’s airliner fleet. Ascend shows that there are 150 A320 family aircraft flying for Indian carriers, slightly ahead of the 135 Boeing 737s in the country. The orderbook, however, indicates that the A320 is set for domination of the Indian market in the coming years, with 265 examples on firm order, compared with just 51 737s.
Order backlog for Indian operators - 399 aircraft
As for widebodies, Indian operators have a modest 32 aircraft on order. Of these, only a fraction (three 777-300ERs for flag carrier Air India) are large, long range aircraft. The majority are 24 787s, also planned for Air India, and five A330-200s planned for Jet Airways. There are no A380s or 747-8Is in the backlog of Indian operators, although grounded carrier Kingfisher Airlines formerly had orders for five A380s.
A key issue that has held back orders of widebodies in the subcontinent is the failure of major Indian airports such as New Delhi and Mumbai to emerge as hubs on routes from Asia Pacific to Europe. Although geographically they enjoy similar advantages to the Persian Gulf hubs - Dubai, Abu Dhabi, and to a lesser extent Doha - and have a massive travelling population at their doorstep, India’s big airports have vastly underperformed in the key area of international hub traffic.
In 2012 India’s ministry of civil aviation decried the “leakage” of international passengers to major overseas hubs.
“Indian airports have the potential of extracting significant hub traffic from its regional competitors, given its natural growth of traffic and the geographical positioning of India," the ministry said in a discussion paper.
The ministry stated that international traffic originating or terminating in India for the year ended March 2011 was 37 million. Of this total, 22 million passengers flew directly to their destination, while 15 million connected through a hub outside India. Of this 15 million, it said 11.4 million comprised "leakage" of passengers that could potentially flow through a hub within India such as New Delhi or Mumbai, as opposed to an overseas hub such as Dubai or Singapore.
Order backlog of Indian operators by aircraft type
Developments in 2013, following New Delhi’s 2012 decision to allow foreign carriers to hold 49% of domestic airlines, could see the “leakage” situation exacerbated. Etihad’s acquisition of a 24% stake in Jet Airways effectively allows Jet to feed the Middle Eastern carrier’s Abu Dhabi hub. Aside from adding 20 A320s to India’s domestic market, the planned joint venture between Singapore Airlines and Tata Sons will feed SIA flights operating from key Indian cities to SIA’s Changi hub. Concrete details about the joint venture’s route network have yet to be made clear, but the wider SIA group sees India as crucial to its growth strategy.
Boeing’s Current Market Outlook paints a bleak outlook for widebodies in South Asia. It estimates the market will take zero large widebodies, either 747-8Is or A380s, in the next two decades. As for medium widebodies, such as 777-300ERs, it foresees a market for 170 aircraft, and a requirement for only 140 small widebodies, such as 787-8s. Boeing foresees an immense market for single aisle jets, however, predicting demand for 1,450 such aircraft. It foresees a requirement for just 30 regional aircraft, a class of aircraft it does not make.
Embraer chief commercial officer John Slattery, however, recently told Flight International that it can “comfortably” sell 100 E-Jets to Indian carriers in the next five years. He believes there are parallels with the development of China, where “Tier III” regional cities are ideal markets for regional jets. He says a number of domestic Indian routes now served by turboprops on “a monopolistic basis” are ripe for competition from regional jets.
Predictions about the future of a country as large and complex as India must always be handled cautiously, but it is all but certain the country’s airline market will continue to suffer intense competition. There is a very real danger that new entrants will recreate the situation of overcapacity that prevailed until the spectacular implosion of Kingfisher in 2012. Nonetheless, for the longer term the world’s big airframers have a superb opportunity to sell metal in a massive country that will not produce a viable indigenous aircraft for decades to come.