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Business News/ Companies / What aviation will look like in 2016
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What aviation will look like in 2016

Watch out for capacity addition, changes in regulation, airlines tweaking strategies to get a larger piece of market boosting industry growth

Graphic: Ajay Negi/MintPremium
Graphic: Ajay Negi/Mint

Lower ticket prices, a pick-up in air traffic and the listing of InterGlobe Aviation Ltd, the firm that runs IndiGo airline, were the highlights of 2015. This year could be equally exciting with the sector adding capacity and awaiting changes in regulation, even as individual airlines continue to tweak their strategies to get a larger piece of India’s fast-growing market.

TRENDS TO WATCH

Regulation and policies

The 5:20 rule disallows any airline less than five years old and with less than 20 aircraft to fly internationally. New airlines such as AirAsia India and Vistara will set their sights on any possible change in this policy. Airport tariffs are another bone of contention. Recently, GMR Infrastructure Ltd said the aviation ministry has asked the tariff regulator to implement a tariff model for Hyderabad , which would help it earn higher revenues than a previous model proposed by the regulator.

Low-fare warfare

Despite the return of full-service airlines, low-fare airlines are expected to increase their market share. Consulting firm Capa India expects low-fare airlines’ market share in the next two years at 70-75% as they re-emerge stronger. Capa is also expecting consolidation in the airline sector.

Capacity, capacity and more capacity

Airlines are raising capacity massively to capture market share. But demand has not kept pace. IndiGo has placed firm orders for 250 Airbus A320neo planes. It also has purchase rights for 100 more planes. IndiGo has previously placed orders for 280 Airbus aircraft. Low-fare airline GoAir had earlier ordered 72 A320neo planes. New airlines such as Vistara and AirAsia India are also adding more planes to boost capacity, while incumbents such as Air India and Jet Airways are expanding at a moderate pace. SpiceJet, which had to cut its fleet by one-third last year, is now leasing more planes and plans to place orders for 150 new aircraft.

Sell now, fly later

One million seats are up for grabs. Fly for 999. Flash sale. Monsoon Sale. These have been the consistent messages from Indian airlines. SpiceJet had led at least a dozen such flash sales in 2014, before it landed in a financial mess. In 2015, SpiceJet, which is in the middle of an ownership transition triggered by a crippling cash crunch, again resorted to a dozen such sales.

There are various reasons that such sales continue to exist. Flash sales help airlines generate working capital, fill seats which would otherwise have gone empty and offer an opportunity to tap the large leisure segment of customers.

Traffic spike

India is among the five fastest-growing aviation markets globally with 275 million new passengers travelling and will displace the UK as the third largest in 2026, according to the International Air Transport Association (Iata). Even in the short term, a spurt in passenger traffic has been visible. According to the Centre for Monitoring Indian Economy (CMIE), passenger traffic increased 15.54% during the last fiscal year against 6.51% in the fiscal year 2013-14. That pick-up has continued in 2015 and may extend into 2016, particularly if prices stay in check.

COMPANIES AND PEOPLE TO WATCH

Vistara: The airline has completed one year of operations in December. So far, Vistara has not been successful in filling seats. The premium economy concept, which it was banking on, has not yet taken off. Vistara is also pitching for a removal of the 5/20 rule which will allow it to expand faster.

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IndiGo: The IndiGo initial public offering and its subsequent listing has been a runaway success. The airline has already broken into the top 50 market capitalization club. The flip side of going public will be intense scrutiny of IndiGo’s finances. The delivery of the new A320neo planes can prove to be a game changer for IndiGo.

GoAir: After IndiGo’s successful listing, GoAir is also looking to go public. The airline, which has hired former Jet chief executive officer Wolfgang Prock-Shauer, is also looking at focusing on profitable growth. GoAir will also induct 26 new fuel-efficient planes to its fleet by the end of March 2017, a move that will reduce its cost of operations.

Photo: Priyanka Parashar/Mint
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Photo: Priyanka Parashar/Mint

AirAsia: AirAsia will be forced to tweak its strategy as the relaxation of the 5/20 rule is yet to happen. Losses are mounting. For the September quarter, the airline reported a loss of 61.15 crore, compared with 44.15 crore in the preceding three months due to competition and discounts. How it reverses this will be closely watched.

SpiceJet: SpiceJet is likely to get some capital infusion this year. It should also be adding to its fleet shortly. India’s second largest low-fare airline is exploring options to increase its fleet in the short term to keep up with demand growth, while proposing to raise up to 5,000 crore in loans, it said in a recently released annual report for fiscal 2015.

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Published: 04 Jan 2016, 12:55 AM IST
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