Air India's mega-deal, other domestic airlines' order books raise hope for series of growth | Mint
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Business News/ News / India/  Air India's mega-deal, other domestic airlines' order books raise hope for series of growth

Air India's mega-deal, other domestic airlines' order books raise hope for series of growth

Indian airlines have lined up an order book of more than 1,100 aircraft. This is drive a series of growth in the world's fastest growing aviation market. Air India and Indigo hold majority in the total order.

Currently, in India, around 700 commercial aircraft are flying with the majority of them being narrow-body planes. (AFP)Premium
Currently, in India, around 700 commercial aircraft are flying with the majority of them being narrow-body planes. (AFP)

Tata Group-backed Air India's mega order of 470 aircraft has become the forefront of expectations of driving growth in the Indian aviation market. This coupled with big orders from other domestic carriers has raised a series of hopes. More than 1,100 aircraft orders have lined up. This is expected to reduce reliance on international carriers and increase passenger penetration in domestic carriers, hence, scaling up demand growth.

Air India has signed letters of intent with the two leading aircraft makers Airbus and Boeing. Under the deal, Air India will acquire around 250 fleets from Airbus, and 220 fleets from Boeing.

As per the statement, the A350 aircraft will be powered by Rolls-Royce engines and the B777/787s by engines from GE Aerospace. All single-aisle aircraft will be powered by engines from CFM International.

Following this order, GE Aerospace's Country Head, South Asia & Indonesia, Vikram Rai told PTI that India has the potential to grow both on the wide-body and narrow-body side.

Additionally, the country's largest airline in terms of market share, Indigo is already set to take deliveries of around 500 planes, while Go First will add 72 aircraft to its fleet size. New entrant Akasa Air is also in line to get 56 planes, and Air India owner's another carrier Vistara also has 17 aircraft orders. SpiceJet too has aircraft on order. These are narrow-body planes.

Taking into consideration the above, Indian carriers including Air India's latest massive order, are set to receive 1,115 planes.

Rai highlighted that, in India, pre-Covid traffic came in around 75 million international passengers. And from this total, about 60-65% of the passengers used foreign carriers.

He believes with India's economy growing and disposable income growing, there is a huge potential for Indians to travel abroad --- and this 75 million passengers' are likely to go to 120-125 million over the next 7-10 years.

In regards to Air India's order, V Thulasidas, who was Air India's chief from December 2003 to March 2008 told PTI that the country which now has world-class airports, can act as hubs. He believes that Air India has secured their growth plans for at least the next 10 years.

While talking about the reliance on foreign carriers, Ajay Sawhney, Partner at law firm Cyril Amarchand Mangaldas told the news agency, from a connectivity perspective, Indians have been relying a lot on Emirates, Etihad, and Qatar for the last few years, and Air India's latest order means strengthening the star alliance community, which in turn would offer more options to Indian as well as South East Asian passengers into Europe and US, and probably on better pricing points.

Air India will receive the first of the new aircraft in ate-2023, with the bulk to arrive from mid-2025 onwards. In the interim, Air India has already started taking delivery of 11 leased B777 and 25 A320 aircraft to accelerate its fleet and network expansion.

Notably, the Air India group currently comprises full-service Air India, as well as two low-cost subsidiaries Air India Express and Air Asia India are in the process of merging.

Recently, parent Tata Sons announced its intention to merge Air India with full-service airline Vistara, a joint venture between Tata Sons and Singapore Airlines in which the former holds a 51% share.

On February 14, Air India in a statement said, in steady state, subject to regulatory approval, the Group would comprise a single full-service airline, Air India, and a single low cost airline, Air India Express.

These are not all, the Indian airlines are expected to place orders for additional 1,000-1,200 aircraft, starting off with another large order from IndiGo, as per a report by the Centre for Asia Pacific Aviation India (CAPA India).

As per CAPA's note, almost every carrier in India is expected to order more aircraft in the next couple of years, for fleet replacement as well as growth, given that the order book for most incumbent carriers could be considered conservative relative to the growth potential of the market over the next decade and beyond.

On Friday, CAPA in its note said, while many airlines in the Asia-Pacific region paused aircraft deliveries during the pandemic, some of the strongest LCCs continued to receive new narrowbodies and are now further advanced on their fleet modernisation efforts.

CAPA specifically pointed out Indigo's fleet modernisation and capacity recovery strategies. It added, IndiGo did not defer its narrowbody deliveries throughout the pandemic, although it did switch its focus – temporarily at least – from fleet growth to renewal.

Post Q3 results, Prabhudas Lilladher on Indigo airlines said, "IndiGo has guided for capacity growth of 45% YoY in Q4FY23 (implies 3% QoQ growth) and ~15% growth in FY24. We expect RASK to soften QoQ in Q4FY23 (on a relatively high base) due to seasonal weakness in traffic/fares, lower load factor and also pass-through of lower fuel costs. Strong growth outlook, improved fare discipline and lower fuel costs are key catalysts. Stock trades at 10.9x/9.3x FY24E/25E EBITDAR. Maintain BUY."

SpiceJet which is the other major airline listed on stock exchanges will announce its Q3 results this week.

According to DGCA data, in 2022, domestic airlines carried passengers to the tune of 1232.45 lakh --- higher than the 838.14 lakh passengers carried in the previous year.

India is currently the third largest and fastest growing aviation market globally.

By end of December 31, 2022, Air India holds a 9.1% market share, while Air Asia and Vistara hold 7.6% and 9.2% share respectively. Indigo continues to dominate the market with a share of 55.7%. SpiceJet and Go First hold a market share of 7.4% and 7.3% respectively. Rakesh Jhunjhunwala-backed Akasa Air holds a 1.8% market share.

Currently, in India, around 700 commercial aircraft are flying with the majority of them being narrow-body planes.

(With inputs from PTI)

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Published: 19 Feb 2023, 08:33 PM IST
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