BackThe irony of the Indian aviation industry
How capacity growth from low-cost airlines and fliers continuing to enjoy low fares will lead to a virtuous cycle of passenger growth in the new year
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The glass facades of two swank new airports shine in the afternoon sun, waiting for their true potential to be developed.
One newbie airline that can harness that potential, backed by one of the world’s most cash-rich airlines, waits with bated breath for the government’s policy on flying international. The government, on the other hand, is more interested in regulation than a free market.
Visa-on-arrival expands to more countries, but still forms less than half a percent of tourism arrivals.
Hotels and state tourism boards expand their presence, but international carriers still face capacity constraints into India.
That’s the irony of Indian aviation.
Trends to watch out for in 2016:
Air Asia: The sudden slowdown in Air Asia’s growth plans seems fairly mysterious. The excuse they are clutching on to—waiting for a change the 5/20 rule—doesn’t hold water as the plans for growth were based on the domestic market. It points to a cash crunch with the parent company in Malaysia, as is evidenced by deferred aircraft deliveries and lower profit. Air Asia should also get rid of its stubbornness and start operating flights into the financial capital. Once Air Asia gets rid of its stubbornness and its confusion in its strategy in India, as well as its financial issues, it should get into the growth path in the Indian market. Further, flying international is not going to be the elixir for Air Asia. India is not yet a market for international low-cost travel, as is seen by the small proportion of international low-cost capacity versus the full-service hub-and-spoke model.
Vistara: Watch out for the downsizing or the scrapping of the premium economy class, a misfit in a domestic market that is hungry for low fares and is used to a seat being commoditized rather than marketed. Vistara’s pricing is hurting its load factors, but its measured growth strategy, waiting for the five-year sentence to end to fly international, will help cut its losses.
The others: Air India seems to be growing its international capacity faster than Jet, with the launch of the much-needed India-San Francisco flight. Jet Airways seems to have resigned itself to being a feed to Etihad. Its international growth has stagnated and its latest aircraft order for narrow bodies is a testimony that its focus is now domestic, or at most feeding the Abu Dhabi hub. IndiGo, SpiceJet and GoAir will continue to cruise if the fuel prices hover at the current rates.
The 5/20 rule: Watch out for the international airlines that have less than 20 aircraft and less than five years of experience coming into the Indian skies. But, will the 5/20 rule be abolished or changed to allow local airlines to operate viably? Let’s do the math. The lobby of Jet Airways, Air India, IndiGo and SpiceJet have finished their five-year sentence. Two newbie carriers are waiting for the rule to be scrapped. The math explains itself.
Regulation: For a government that promised much to deliver on governance, the 5/20 rule is one of the simplest rule to scrap, especially since it favours the domestic airlines and not the international ones. But this government seems to be following its predecessor’s mode of rhetoric, talking about capping airfares and additional cesses on an industry that is already burdened with excessive taxes. Can the government talk about capping taxi fares or the cost of cars? Why is aviation no different in a free market? Make in India, visas on arrival, foreign direct investment or FDI, Athithi Devo Bhava—every one of them needs more airlines flying into and out of India.
International carriers: They will continue with their organic growth into India, with secondary cities such as Amritsar, Jaipur and Tiruchirappalli coming into focus.
The hub: India is geographically perfectly positioned to hub a passenger from Sydney to London, from Frankfurt to Bali, Beijing to Nairobi and Jakarta to Jeddah. Delhi and Mumbai have swank new terminals. Oh wait, Delhi has had the new terminal for a few years now, without exploiting its full potential as a hub rivalling Singapore, Dubai and Doha. Jet Airways doesn’t have the will to do this anymore, while Air India doesn’t have the strategy, and Vistara has both in addition to the financial backing, but doesn’t have the rights. We would like to see Vistara pulling a rabbit out of the hat by buying out one of the airlines that have finished their five years à la Kingfisher, or IndiGo buying wide-body aircraft and setting up a full-service or a hybrid hub-and-spoke airline flying overseas with a hub in Delhi or Mumbai.
The bottom line for 2016: We will see capacity growth from the Indian low-cost airlines, and the consumer will continue to enjoy low fares, leading to a virtuous cycle of passenger growth. The 5/20 rule will either stay or be mutated into a form that is still commercially not viable for carriers to go international. Tourism growth into and out of India will continue to be slow, with international airlines still being limited by bilateral rights. And Delhi and Mumbai airports will have to wait for a few more years.
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