Air India’s jumbo Airbus order has undergone a big change | Mint
Active Stocks
Mon Feb 26 2024 15:59:59
  1. Tata Steel share price
  2. 142.60 -1.99%
  1. Power Grid Corporation Of India share price
  2. 287.75 1.97%
  1. HDFC Bank share price
  2. 1,422.25 0.10%
  1. ITC share price
  2. 409.20 -0.58%
  1. State Bank Of India share price
  2. 759.00 -0.05%
Business News/ Companies / News/  Air India’s jumbo Airbus order has undergone a big change
BackBack

Air India’s jumbo Airbus order has undergone a big change

Air India’s focus is moving towards becoming a premium carrier. It has been evident from the announcements for refurbishment that they did

Behind Air India’s strategy on swapping orders.Premium
Behind Air India’s strategy on swapping orders.

After much speculation, the Air India group announced an order for 470 aircraft on Valentine's Day this year. This was touted as the largest order in history, but no love was lost with rival IndiGo signing up for 500 planes - exactly a day before Air India formalised that order. This made IndiGo snatch that record, before it was formally created. Both events took place at the Paris Air Show in June this year.

Air India's order included a mix of Airbus and Boeing along with a mix of narrowbody and widebody. With Airbus, the order included 140 A320neo aircraft, 70 A321neo, 34 A350-1000, and six A350-900 wide-body jets.

The six A350-900s were originally destined for Aeroflot and weren’t delivered after Russia attacked Ukraine in February 2022. It was largely believed that Air India has selected the A350-1000s for its need and the six A350-900s are being taken up as they are available rather quickly. Four of the six A350-900s have been delivered to Air India, though none have made it to India yet as they are currently either being painted in Air India colours or undergoing cabin refits.

In a surprising development, the latest orders data released by Airbus, which covers data until the end of November, shows that Air India has rejigged its orders, moving for 14 more A350-900s than originally planned and reducing an equal number of A350-1000s. The more surprising change has been on the narrowbody front where the airline has swapped the orders with only 70 A320neo now on order and taking the A321neo order book to 140. None of the narrowbody aircraft are yet delivered, with the current ones coming from an earlier order placed in 2022 via lessors.

A normal phenomenon

Typically, contracts between OEMs and airlines allow such changes in the order book. It comes at a cost and has a cut-off date, back-calculated based on the well-oiled production process. While there are many common parts between the A320 and A321 and likewise with the A350-900 and A350-1000, the changes have to be done well in advance to ensure that the suppliers and their suppliers are sounded off about the change well in advance before the first part starts its journey towards production. This becomes even more critical during the current times when Supply chain issues are the buzzwords.

Rival IndiGo has also rejigged its order split multiple times in the past, first tilting in favour of the A321neo, moving to A320neo before tilting again towards the A321neo.

What does it tell about the strategy?

Air India’s focus is moving towards becoming a premium carrier. It has been evident from the announcements for refurbishment that they did, along with a long-term plan to add premium economy on narrowbody fleet and delay the merger of Vistara with Air India. Most of Vistara’s fleet is configured in three classes. The A321neo has become popular worldwide for the flexibility it gives. In a cutthroat market like India, the focus has been on keeping costs low, and with Air India’s legacy costs, the airline seems to have focused on lowering its CASK or Cost per Available Seat Kilometre. Vistara had to invest in reconfiguring its aircraft twice since inception and with that experience with it, Air India may have wanted to have extra economy seats at hand in addition to Business and Premium Economy. Airbus does not offer the breakup of the A321neo, but it comes with options like the A321LR - which Vistara uses to fly longer routes to Bali, Mauritius, and Hong Kong, while JetBlue flies transatlantic with it; and the yet-to-be-inducted A321XLR. These could potentially help Air India launch more destinations and add capacity to slot-constrained airports in India and neighbouring countries.

The widebody order changes and sees a balanced approach. The A350-900 seats fewer passengers and has a shorter range than the A350-1000s. While the -1000s give a wider flexibility, it comes at an additional cost, and not all routes may be up for such a huge capacity. Some of these planes may also act as replacements for the older 787s and the A350-900s fit the bill better. The A350-900 also comes with the ULR version which flies up to 18,100 kms, a version which Singapore Airlines uses to fly to the US. Cathay Pacific and Qatar Airways have the two versions in the fleet, while a few more including Air India plan to have both.

With a delivery schedule that spans multiple years, a typical “options" clause is built into the contract but not made public and Airbus investing in increasing the monthly production rate. More changes are possible in Air India’s order, especially on the narrow body side.

Passenger demand is elastic, while capacity is signed up in advance making it a difficult industry. There have been cases where passenger demand has evaporated overnight and airlines have been stuck with capacity at hand, yet demand comes back and hence the game is more about achieving the balance.

 

Unlock a world of Benefits! From insightful newsletters to real-time stock tracking, breaking news and a personalized newsfeed – it's all here, just a click away! Login Now!

Catch all the Corporate news and Updates on Live Mint. Check all the latest action on Budget 2024 here. Download The Mint News App to get Daily Market Updates & Live Business News.
More Less
Published: 06 Dec 2023, 07:24 AM IST
Next Story footLogo
Recommended For You
Switch to the Mint app for fast and personalized news - Get App