India’s new-look airline industry

posted on 1st December 2022
India’s new-look airline industry

With new ownership, management and ambitious growth plans, India’s air transport industry is going through a remarkable transformation.
Tony Harrington reports

“Welcome to the new era” trumpets Air India on its revamped website, in a bold teaser of big things to come. Having this year been acquired from the Government of India by Mumbai-based industrial group Tata Sons, the freshly re-privatised national carrier is now on a steep flight path to renewal after years of financial and reputational turmoil.
Air India is not just under new management. It is also returning to its ancestral owners, having been established in 1932 by JRD Tata, the first Indian national to achieve a commercial pilot’s licence, and a visionary who saw the potential and opportunity of aviation as an economic and social driver for the nation.
Now that vision is evident again, not just for Air India almost 70 years after the transition from Tata Airlines, but also for the nation’s entire aviation sector, which is entering a period of extraordinary growth after Covid, seemingly with little concern about the richly turbulent and well-documented history of Indian aviation.
Casualties over the years have included Kingfisher Airlines, Jet Airways and many more, plus a list of struggling survivors headlined by Air India. And yet, airlines old and new are excitedly revealing expansive and expensive plans for their networks, fleets and operations – plans which some believe will inevitably lead to fresh failures, further instability and a new round of consolidation.
“There’s some form there,” said one former executive of an Indian airline. “Banks will have long memories from Jet and Kingfisher, and the aircraft lessors won’t be taking any chances either. It’s a crowded market. It will come down to how they all manage their cost base.”

Growth potential
Still, confidence right now is in much greater supply than is caution, and India’s air transport industry is laser-focused on long-term growth in the air and on the ground as the national economy reactivates, the middle class continues to grow and spend, and demand for air connectivity soars to new heights.
As well, there’s the ever-enormous opportunity presented by the sheer size of the Indian market: 1.47 billion people, of whom it is estimated that just 4% have ever flown. By 2030, India’s population is expected to reach 1.515 billion, an increase of 45 million (roughly equivalent to the population of Spain today). The potential just continues to grow.
Air India’s full circle of ownership, from private to public and back to private, is illustrative of the revolution occurring across India’s air transport industry, and the tailwind of confidence propelling it from a painful past to what its participants hope will be a prosperous future.
There’s also excitement on the ground, with airport operators tipping billions of dollars into new infrastructure ahead of the predicted surge in passenger journeys, and government increasing its investment in air traffic management.

Made in India
“The Indian aviation industry has recovered fully from the Covid-19 pandemic shock,” proclaimed the India Brand Equity Foundation (IBEF), a marketing vehicle established by the Indian Government to promote the ‘Made in India’ label to global investors, policy makers and media.
“India has become the third-largest domestic aviation market in the world and is expected to overtake the UK to become the third-largest air passenger market by 2024. Domestic traffic contributes around 69% of the total airline traffic in South Asia, and India’s airport capacity is expected to handle 1 billion trips annually by 2023.”
Among those with big new plans are the market’s current leader, low-cost carrier IndiGo; the reinvented Air India; the Tata-Singapore Airlines-owned full-service carrier Vistara; LCCs Spice Jet, Go First and Air Asia India; the start-up LCC Akasa Air; and a proposed new version of Jet Airways.
IndiGo dominates, with 100 destinations (74 domestic, 26 short-haul international), 1,600 daily flights, and more than 270 aircraft, most of them Airbus A320-family narrowbodies. It also has outstanding orders for around 500 new Airbus A320, A321 and long-range A321 XLR jets, a clear indication that it has both enormous plans to grow its network reach and density, and staggering self-belief.
Atop its passenger flights, IndiGo has also inaugurated dedicated cargo operations, inducting the first of four Airbus A321 P2F aircraft (former passenger jets converted to freighters).
The 16-year-old airline’s scale provides not only national passenger and freight linkage within India, but also vital connectivity to and from its international routes, and feed for its growing list of foreign partners, an ‘A-list’ currently including the world’s largest carrier, American Airlines; European stable mates Air France and KLM (the latter’s former Chief Executive, Pieter Elbers, is now CEO of IndiGo); Gulf giant Qatar Airways; Turkish Airlines; Australia’s Qantas; Jetstar Asia; and most recently Virgin Atlantic.
The official market share figures released by India’s Directorate General of Civil Aviation (DGCA) show IndiGo held an extraordinary 56% share of the domestic air travel market after the first three quarters of this calendar year, building on previous strong success – partly enabled by the failure of former number one Jet Airways, and before that the absorption of domestic carrier Indian Airlines into the dysfunctional pre-Tata version of Air India.
But more than that, IndiGo’s success rests upon the simplicity of a single class, single type fleet, and a focus on reliability.

Market share
IndiGo’s market share eclipses the combined totals of the 10 other Indian airlines assessed by the DGCA from 1 January to 30 September this year, led in distant second position by Go First (previously Go Air) with 9.5%, Spice Jet and full-service airline Vistara each with 9.2%, Air India (8.6%), Air Asia India (5.7%), Alliance Air (1.2%), Fly Big and Star Air (0.2 each%), new LCC Akasa Air (0.18%), and Tru Jet, a regional turboprop airline which suspended flights in Q1 this year and is now looking to resume. Its market share was under 1%.
Not one of these airlines looks remotely like challenging IndiGo. But there’s a twist. Not only has Tata acquired Star Alliance member Air India. Agreement has also been reached for Tata to acquire Air Asia India, in which it is currently a joint venture partner with Malaysia-based Air Asia. Tata plans to merge Air Asia India with Air India Express, to create a single and much larger LCC.
Together with Singapore Airlines, Tata also co-owns full-service airline Vistara, which is the subject of further strong speculation regarding a merger with Air India.
Individually, each of these airlines has a negligible market share when compared to IndiGo. But collectively the domestic market shares of airlines either wholly or partly owned by Tata totalled 23.5% for the first three quarters of this year – still well behind IndiGo, but well ahead of all others.

Domestic plans
Air India has announced that it wants to build up to 30% domestic share within five years. It also wants to significantly increase India’s international air transport operations, in which the nation’s own airlines are woefully under-represented. This is due in large part to the long-term decline and shrinkage of Air India, as well as the collapse of Jet Airways, once India’s biggest airline and a major international operator.
“If you look for a national carrier of India, it’s Emirates, Singapore Airlines or Qatar. But it’s not Air India,” said a senior industry analyst.
With the advantage of existing access to international air rights and airport slots, and if it had a larger domestic network for connectivity to, from and within its home market, Air India would be a formidable competitor and valuable partner, he said.
Under Tata, Air India has just released a revival plan titled ‘Vihaan.AI’, the word ‘vihaan’ signifying in Sanskrit ‘the dawn of a new era‘.
“This is the beginning of a historic transformation for Air India,” explained Campbell Wilson, the airline’s Managing Director and Chief Executive Officer. “We are laying the foundation for a brave new Air India, with a renewed sense of purpose and incredible momentum.
“Vihaan.AI is our transformation plan to make Air India the world-class airline it once was, and that it deserves to be again. We are absolutely focused on being recognised as a world-class airline serving global customers, with a proudly Indian heart.”
Initially, Wilson said, Air India will be concentrating on “fixing the basics”: refurbishing aircraft cabins, repairing unserviceable seats, improving flight punctuality and returning to service the last of its aircraft still grounded as a result of the Covid pandemic.
Next, from December 2022, will come the first of 30 additional aircraft – five Boeing 777-200LRs for North America flights, and Airbus A320s and A321s for domestic and short- to medium-haul markets.
“After a long time without significant growth, Air India is delighted to resume expanding its fleet and global footprint,” said Wilson. “These new aircraft, together with existing aircraft being returned to service, address an immediate need for more capacity and connectivity, and mark a strong step forward. Air India has exciting expansion and renewal plans, of which these new aircraft are just the beginning.”

New fleet
Discussions will begin next year with aircraft manufacturers as the company prepares for a major order of new narrowbody and widebody jets to further increase operations on existing routes and expand into new markets through both its full-service and LCC divisions.
While Air India and its partners rebuild, and IndiGo continues to climb, another significant development has been unfolding in the background – the arrival of Akasa Air, a brand-new low-cost operator launched in August with two Boeing 737 Max and plans to grow to 18 planes by the end of March 2023, and 72 within four years.
Launching the airline’s first commercial flight, a service from Mumbai to Ahmedabad, Akasa’s Founder and Chief Executive, Vinay Dube, said the company’s lift-off was “a testament of India’s ongoing economic transformation, and that of the country’s rapidly progressing civil aviation landscape.
“We are thrilled to finally begin our commercial journey and bring alive our vision of supporting India’s economic progress and building India’s greenest, most dependable, and most affordable airline,” he said.
Industry observers say Akasa’s simple strategy of one aircraft type, one cabin class and low fares – not unlike IndiGo – will give it a real chance to survive in the tough Indian market. So too will its ‘clean sheet’ start, with no historic costs or legacy obligations.
“As long as he [Dube] doesn’t get a rush of blood to the head and bring in business class and widebodies, he should be OK,” said one. Another said an uncomplicated business plan and a simple product offering was critical to Akasa’s survival. “You can’t sell multi-class service in domestic India,” he said. “If Akasa is sensibly managed, there’s room for it in the market, even with IndiGo sitting on 56%.”
It’s not just domestic services that are growing. International services, too, are taking off, with Air India preparing to relaunch into multiple markets, with the USA a priority once additional Boeing 777-200LRs start arriving from December. IndiGo has added new routes including Mumbai-Istanbul and Hyderabad-Riyadh, Vistara has started Mumbai-Abu Dhabi flights, and Spice Jet is reportedly preparing to fly 737s between Amritsar and Milan.
In addition, foreign carriers are targeting India with new or renewed services. Among them are UK start-up long-haul carrier Hans Airways, which has announced plans for Airbus A330-200 services to secondary cities in India, starting with Birmingham-Amritsar once regulatory approvals are received, while Australia’s Qantas has introduced two new routes to India, Sydney-Bengaluru, and Melbourne-Delhi, also with A330-200s.

New airports
Underpinning the surge in new air services there has also been substantial and intensifying focus on airport and airspace infrastructure, both from the Indian Government and external investors.
“To cater to the rising air traffic, the Government of India has been working towards increasing the number of airports,” said the India Brand Equity Foundation. In 2022, it said, India had 129 operational airports. By 2040 it would need 190-200.
Beyond the growth of international and mainline air traffic, the Indian Government is also supporting secondary markets through the Regional Connectivity Scheme – ‘Ude Desh Ka Aam Nagrik’ (RCS-UDAN), creating more routes and encouraging millions of additional travellers into the air.
And then there is air freight, Between FY16 and FY22, the IBEF reports a rise in India’s air freight traffic from 2.7 million tonnes to 3.14 million tonnes, a compound annual growth rate of 2.5%. “Freight traffic at airports in India has the potential to reach 17 million tonnes by 2040,” it said.In the next four years, India’s aviation sector is expected to attract almost US$5 billion in investment, including $1.83 billion committed by the Government of India to develop airport infrastructure and improve air navigation services.
This year, said the IBEF, $1 billion was raised by two of India’s biggest airport operators: $750 million by Mumbai International Airport Limited through a private placement by US-based asset manager Apollo Global, and $250 million by Adani Airport Holdings to fund the development of six airports it manages.
Additionally, the Airports Authority of India (AAI) and other airport developers have committed to outlay a combined total of almost $12.1 billion to help develop the airport sector in India, with AAI planning to spend $3.58 billion in the next five years.
After decades of instability, capped off by Covid, this is, indeed, a new era for Indian aviation.
Whether it manages to avoid fresh turbulence remains to be seen.