More than 18 months since the COVID-19 pandemic brought the economy to a grinding halt, the aviation sector is yet to recover completely. But the latest data from the Directorate General of Civil Aviation (DGCA) shows things may be on an upswing.
Between January to October 2021, domestic airlines carried close to 6.21 crore passengers, compared with 4.93 crore passengers a year ago. That is a near 26 per cent jump, although on a low base of 2020.
As the COVID-19 cases in the country continue to drop, the vaccination pace has also increased, it is expected the economy will continue to pick up as will aviation and travel. October-December is a strong quarter for the aviation sector as many people travel in the holiday season.
So, on the domestic front, things are certainly looking up.
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“Prima facie, Indian airlines are out of the doldrums as domestic passenger numbers have breached 90 per cent of pre-COVID levels during the peak holiday season. This trend should continue well into December,” pointed Vinamra Longani, head of operations at Sarin & Co, a law firm that specialises in aircraft leasing.
Aviation consultancy CAPA India had earlier forecast Indian airlines to fly between 8.0 crore to 9.5 crore passengers domestically in the current financial year ending March 2022. While it has maintained this forecast, it now sees the actual figure to be closer to the upper end of the range, versus the lower end, which it had expected earlier.
Buoyed by the “stronger than expected recovery in domestic traffic,” CAPA India has lowered the overall loss it expects the industry to post this year to around $3.5 billion to $3.7 billion from $4.1 billion it had forecast earlier.
Even as domestic business has picked up, Indian airlines are still facing some turbulence on international routes. In the last few years, India’s airlines including Indigo, SpiceJet and Vistara have all expanded operations and added flights to several overseas markets.
However, many countries are still not allowing foreign travellers fearing the further spread of COVID, and much of the international travel has been restricted to temporary “bubble” agreements among countries. While Singapore is beginning to open up, Malaysia and Thailand remain closed for flights from India as there are no air-bubble arrangements.
So, while domestic air travel has picked up close to pre-COVID levels, restrictions will continue to impact international travel for at least the next couple of months, say analysts.
“All large Indian airlines, except, Air Asia India, had overseas operations pre-COVID. So, till the time these regional markets are not opened, there will be spare capacity, which Indian airlines would continue to struggle to fill,” Longani said.
CAPA India expects international traffic from India will be in the 1.6 crore to 2.1 crore range this year, with a potential upside if international flights resume as per pre-COVID schedules.
The pandemic has had a huge impact on the sector. The aviation consultancy says India’s airlines would need to raise at least $1 billion in the remainder of the current financial year, with SpiceJet alone needing close to $400 million.
GoAir (now rebranded as GoFirst) is set to go public this year, with a Rs 3,600 crore (around $490 million) initial public offering.
Over the last decade, India’s aviation industry saw several airlines shut shop—Jet Airways and Kingfisher were among the most notable ones, but several smaller airlines like Air Costa, Air Carnival and Air Pegasus also ceased operations.
In that sense, 2022 could well be a new sunrise for India’s aviation industry with two brand new airlines—Akasa (backed by billionaire investor Rakesh Jhunjhunwala) and Jet Airways (now under the ownership of the Kalrock Jalan consortium)—set to take off.
Earlier this month, Akasa placed orders for 72 Boeing 737 Max jets as it looks to kickstart operations from next year. The deal is valued at close to $9 billion at list prices. Akasa, which is headed by former Jet Airways CEO Vinay Dube and also has former Indigo president Aditya Ghosh on board, is targeting the ultra-low-cost carrier (ULCC) space.
“Akasa negotiated during COVID. Their cost of acquisition of aircraft, their cost of acquisition of maintenance deals, their cost of acquisition of people and other services are going to be significantly lower. Whether they can maintain it as their size increases will be key,” said Kapil Kaul, CEO of CAPA India.
Also, if they are looking at a ULCC strategy, then their revenue side will be critical as fares will be lower and there will have to be a huge focus on ancillary revenues, he added.
Elsewhere, Jet Airways is also likely to take off in a brand new avatar from the January-March quarter. The Kalrock Jalan consortium got approval from the National Company Law Tribunal (NCLT) to acquire Jet Airways in June 2021 and the new owners plan to have over 50 aircraft in three years and over 100 in five years.
New airlines will be a good thing for passengers. People will have more choice, because of the competition, and on routes where these airlines will fly, fares are also likely to come down. The other gainer will be the industry itself, as the new airlines will create thousands of new jobs.
Both the airlines come with huge ambitions and capital. However, getting a foothold in a market, where just Indigo controls half of it, is not going to be easy.
Between January-October, Indigo alone carried 3.41 crore passengers and it had a market share of 54.9 per cent. It was followed by Air India, with a market share of 12.6 per cent and SpiceJet 10.6 per cent. Among other key airlines, GoAir had an 8.1 per cent market share, Vistara had a 7.2 per cent share and Air Asia India was at 5.8 per cent.
Indigo already has around 275 aircraft and operates more than 1,400 daily flights. SpiceJet, the second-largest player, is set to resume its aircraft additions and plans to induct 50 Boeing 737 Max planes by 2022-23.
With Tatas acquiring Air India, the group will also strengthen its position in the market. Vistara and Air India together will have around 19 per cent market share, based on numbers for the Jan-Oct period. The expectation is that the new owners will look to increase Air India’s domestic capacity.
“New Air India under Tata Sons is likely to have a game-changing impact, possibly in the financial year 2024-25,” said Kaul.
Analysts feel both Akasa and Jet Airways 2.0 would need to step on the gas and scale up quickly if they are to gain any relevance in the market.
“At least in the beginning, it’s going to be a David versus Goliath battle especially when you have a market leader that has over 270 aircraft. Hence, how quickly the new airlines ramp-up is going to be key,” said Longani.
With the new airlines, competition is expected to grow in the Indian market. CAPA India says given there are many airlines with a small market share, there will be risks towards consolidation in a post-COVID world.
“We have a fragmented market. After Indigo, there are so many players having 8-10 per cent market share. That is untenable in a new structure. In the domestic market, Indigo has more aircraft than all the others combined. So, you would require a strong number two player with 25-30 per cent share to restore some balance,” said Kaul.
Overall, while there is still uncertainty on how things will pan out in the January-March quarter, which is typically a lean period, 2022 is expected to be a much better year for the industry, say analysts.
“Subject to India not having another COVID wave, the next year should be a great year for passengers because 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 are aspiring to join the aviation industry too as there will be a lot of employment generation due to the entry of new players,” said Longani.
The airline industry has been through severe turbulence in 2020-21. It would be hoping there are clear skies ahead in the coming year.