Airline companies seen ordering new aircraft on sturdy passenger traffic growth: Capa

India’s domestic traffic soared 21.8% in April, marking the 20th month of double-digit traffic growth


According to International Air Transport Association, growth in India is being propelled by the strong economic backdrop and substantial increases in service frequencies. Photo: HT
According to International Air Transport Association, growth in India is being propelled by the strong economic backdrop and substantial increases in service frequencies. Photo: HT

Mumbai: Indian airlines could order up to 250 aircraft in 2016 as the country is expected to clock double-digit passenger traffic growth.

According to a report by aviation consultancy Capa, released on Friday, full-service airline Vistara, run by Tata SIA Airlines Ltd, could place firm orders for up to 100 aircraft, while low-cost airline SpiceJet Ltd is considering an order of up to 150 aircraft.

State-run Air India Ltd was evaluating an order for 50 Airbus A320neos but this has been shelved for now, the report said.

Instead, Air India is likely to expand its fleet by leasing a combination of A320s, ATRs and 737-800s (for its low-fare international airline Air India Express), with a decision likely by the end of FY2017.

“Planned start-up carrier Premier Airways is expected to place an order for 40 narrow-bodies in 3Q or 4Q of FY2017. A number of regional airlines are preparing to launch but any meaningful capacity impact is unlikely until late FY2017. However, one large joint venture airline with pan-India and international ambitions is also in the pipeline,” the Capa report said, without disclosing details of the new airline.

India’s domestic traffic soared 21.8% in April, marking the 20th month of double-digit traffic growth and the 13th consecutive month in which it has led domestic markets the world over.

According to International Air Transport Association (IATA), which represents some 260 airlines comprising 83% of global air traffic, the growth in India is being propelled by the comparatively strong economic backdrop as well as by substantial increases in service frequencies.

However, balance sheets remain weak in the case of several airlines, and Capa estimates significant capitalisation—almost $2 billion—will be required over the next 12 months, of which Air India will account for $1.3 billion; Jet Airways (India) Ltd $250-300 million; SpiceJet $200 million; Go Airlines (India) Ltd (which runs low-fare airline Go Air) $150 million; and others $100 million.

Even as Capa estimates 15% growth in domestic passengers and 8-10% growth in international passengers, excess capacity can disrupt the current sanity of Indian airlines.

“A failure to maintain pricing discipline is the key risk to improved financials, while fuel and currency risks are ever present. Profitability may come under pressure in FY2017 due to the heightened possibility of discounting,” Capa said.

Some 50-60 aircraft are scheduled for delivery in FY2017.

“Combined with airlines striving to increase aircraft utilisation, airlines may come under pressure to sacrifice yields to fill the resultant capacity,” Capa cautioned.

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