Indian market at ‘inflection point’, but can its airlines prosper?

There was a picture posted on Twitter during the three-day CAPA India Aviation Summit that briefly went viral: a Nehru jacket-clad IndiGo chief Pieter Elbers stands beside Air India head Campbell Wilson.

One caption reads: “This picture is equivalent to over 85% share of the Indian aviation market.”

 

This picture is equivalent to over 85% share of Indian aviation market.

✓IndiGo CEO Pieter Elbers
✓Air India MD & CEO Campbell Wilson@capa_india @livemint #CAPASummit @airindiain @IndiGo6E pic.twitter.com/5vYfhlPlyz

— Anu Sharma (@awnusharma) March 20, 2023

More than a year ago, neither were anywhere remotely close to the Indian aviation market. Elbers was leading Dutch carrier KLM and Campbell was with the Singapore Airlines Group.

Yet, within the span of a year or so, much has changed, from leadership changes – Campbell and Elbers joined their airlines in June and September, respectively – to new entrants eager to stake a claim in the country’s fledgling airline sector.

Things hit a new high earlier this year, when Air India announced a historic commitment for over 400 new aircraft from Airbus and Boeing. The airline says this is a move that puts it. – and the country at large – back on the world map.

Perhaps India’s civil aviation minister Jyotiraditya Scindia puts it best: “India is at an inflection point between infancy…[and] having just about entered its growth phase.”

Indeed, through the three days of the CAPA India Aviation Summit, which took place in late-March, there was a palpable sense of excitement, not least among the various Indian carrier CEOs that spoke at various points through the summit.

Yet, and true to the fast-growing and ever-changing nature of the sector, the months that followed saw some sobering news, most notably the grounding of ultra-low-cost carrier Go First in early May.

INDIA POSITIONED FOR GROWTH

Scindia, who spoke at the opening of the summit, cites several opportunities for the sector as it moves towards growth. He contends that the expanding middle class and rapidly growing economy are factors that will facilitate air travel growth.

More crucially, India is “an aspirational country”, Scindia adds, with more than half of its population under the age of 35 – therefore giving the country a “demography dividend” which will be a fillip for the airline sector.

“We believe that with these…factors in place, we need to put in place the civil aviation infrastructure and capability,” he says. Already in the pipeline are airport expansion projects across different cities – metros and smaller towns, says the minister.

“It’s also important to make sure that stop-gap measures are in place to provide facilitation. Surprisingly and shockingly, the situation has now gone the other way. When at one point we did not have passengers to fill our [aircraft] due to [Covid-19 restrictions], now we do not have enough [aircraft] to fly our passengers,” he adds.

Scindia adds that his ministry is looking at amending the country’s aviation laws, with the aim of “making it easier to do business in India”. The civil aviation ministry has already relaxed wet lease restrictions for airlines, allowing them to lease widebody jets for a period of up to one year, in a bid to boost available capacity to meet growing demand.

Civil aviation secretary Rajiv Bansal, who was also speaking at the summit, concurs, and highlights the relatively thin widebody fleet among Indian carriers when compared to other large markets like China. He echoes the optimistic tone of the minister, adding: “I do believe that the way…our sector is positioned, we will be in a global pole position by the turn of this decade.”

CAN INDIAN AIRLINES CAPITALISE ON POTENTIAL?

Airlines likewise are understandably bullish about prospects agreeing that there were plenty of opportunities to tap into. “Airlines in India…are part of a big story, more than just serving our customers,” says IndiGo’s Elbers. ”We are part of the [India] growth story too.”

He adds that the low-cost carrier – India’s largest by domestic market share – is firmly in its “growth phase”, with a steady pipeline of aircraft deliveries through the coming decade, adding to an existing fleet of over 300 aircraft. “I think we are in a very good position towards the end of the decade,” Elbers adds.

Air India’s Campbell is equally buoyant about the national carrier’s long-term strategy. Following its privatisation, Air India rolled out a mid-term transformation strategy, known as Vihaan.AI, which sets out a comprehensive overhaul of the airline’s operations.

Underpinning the transformation is its goal “to be a world-class carrier” again, says Campbell. He notes that the first of its over 400 aircraft on order is due to enter its fleet in under a year, and the airline is close to restoring all its stored widebodies to service.  “In terms of global aviation, I think the pace of transformation will be unprecedented, if not close to it,” he adds.

Vistara chief executive Vinod Kannan tells FlightGlobal the airline is focused on ramping up its international operations in 2023, with its fleet growing by 15 aircraft by end-March 2024.

Vistara, the Tata Group joint venture with Singaore Airlines which is set to become part of the enlarged Air India, deploys about a quarter of its capacity to international operations. it aims to ramp this up to 40% of total capacity by end-March next year.

The carrier posted its first ever profit in the three months ending December 2022, reporting record net profits with over $1 billion in operating revenue. Kannan attributes the surge in revenue to higher fares. ”We hope some of that will continue through the rest of this year as well,” he adds, though he acknowledges that fares have gone down with more capacity back in the market.

It is not just established players seeking to prosper. Vinay Dube, chief executvie of ambitious start-up Akasa Air which launched domestic flights last year, expects the carrier to launch international services by the end of this year. He also says a larger order for Boeing 737 Max aircraft is in the books, on top of its existing commitments for 72 examples.

GO FIRST WOES REMIND OF WIDER CHALLENGES

Still, the journey through an inflection point will come with growing pains, especially for a country where long-term profitability has for many carriers proved elusive.

That was underlined when ultra-low-cost operator Go First suspended operations in early May and sought a formal financial restructuring under India’s bankruptcy insolvency code. 

Go First has laid the blame on the reliability of its Pratt & Whitney engines, which it says have left half its Airbus A320neo fleet grounded – an issue now the subject of a legal tangle between the two. The Wadia Group-owned airline was India’s third largest domestic carrier last year. But that it had only a 9% share illustrates how it has struggled for momentum.A planned IPO has been in limbo since mid-2021.

It is not the only Indian carrier to be ensnared by legal and financial woes: rival low-cost operator SpiceJet most recently found itself in a legal wrangle with Aircastle, after the lessor filed to initiate insolvency resolution proceedings. Spicejet, on its part, claims the notice was issued per normal procedures, stressing that there was “no adverse ruling” against the carrier.

Still, it is the latest in a series of legal woes the airline has confronted, having been the subject of court proceedings initiated by other lessors.

But if airline chief Ajay Singh’s words are to be believed, the airline will be around for long because, as he puts it at the summit: “We just refuse to die”. Singh, who has been with the airline since its founding, outlines restructuring and fundraising plans, and is betting on its SpiceXpress and Logistics unit, which has already been hived off.

Plans to revive now-defunct Jet Airways – already facing legal woes – hit a fresh snag in May, when it was revealed chief executive-designate Sanjiv Kapoor had stepped down from the carrier.

Kapoor, a former SpiceJet and Vistara executive, had been optimistic about Jet’s ability to relaunch when he spoke at the summit. He said the new carrier – which he called ‘Jet 2.0’ – will learn from the lessons of its failed predecessor, and promised a “new approach” to its business model.

TOWARDS ‘WORLD-CLASS’

Indeed, Delhi is also acutely aware that the sector has challenges to confront in its road to being world-class. Civil aviation secretary Bansal lists several challenges, biggest of which he believes, is “building world-class infrastructure”.

“We have always been behind the curve, and now we are trying to build ahead of the curve. We must be able to build infrastructure, and build world class infrastructure…that is a basic ingredient for our unique growth story,” he says.

He also calls on manufacturers to “support our growth story”. Bansal says: “Today, [among] our airlines…there is demand, but there is no supply. We are constricting the supply of seats. Aircraft and engine manufacturers are not able to supply…[and] that is an area that [need] to address,”.

He also urged the development of the country’s maintenance capabilities, stating that MRO providers play an equally role in supporting the airline sector’s growth ambitions.

Nonetheless, he is confident the sector is headed in the right direction: “We have all the ingredients in place…we’ve provided a level playing field for airlines, we are growing our infrastructure and there is a huge demand [in] both domestic and international.”

“I think in this entire puzzle there is no missing piece at all,” says Bansal.