Watch | Business Matters: What do Tata’s moves with Air India mean for Indian aviation?

What do Tata’s moves with Air India mean for Indian aviation?

A video explaining where do airlines in India stand in terms of competition and what the future looks like

December 07, 2022 08:30 pm | Updated December 08, 2022 01:24 pm IST

In January this year, the Tatas took possession of Air India, low-cost operator Air India Express and AI SATS, the ground-handling subsidiary. The aviation sector is moving towards a market in which Air India and IndiGo would be the dominant players.

The aviation advisory firm CAPA India said that in due course the two will control 75-80% of the market. In terms of international market for flights to and from India, the duo’s combined share is expected to go up from 37.8% to above 50%. In other words, servicing of international markets from India, which has been historically dominated by foreign carriers, will see dominance by Indian-owned airlines.

From a profitability standpoint, the pandemic has been unforgiving in terms of bringing travel and hospitality industries to a standstill. Now, with much higher fuel costs and foreign exchange losses, it’s a double whammy for most airlines. 

SpiceJet’s loss widened to ₹838 crore in the quarter ended September, from ₹562 crore in the same period last year. IndiGo’s loss of ₹1,583 crore in the same quarter this year was wider than the ₹1,436 crore loss reported in the year-earlier period.

Jet Airways began operations in 1993 and gave Air India a run for its money. But the carrier got into unsustainable debt and halted operations in 2019 when it entered the insolvency process. The Jalan-Kalrock consortium was the successful bidder but the airline and the consortium have been in the news for reasons other than aviation success.

The NCLAT had asked the resolution professional to pay PF and Gratuity dues to employees from the date of entry into insolvency. But the bidders are insistent that these dues of about Rs 475 crore should be paid by the lenders who say that the bidders must pay the dues. The tussle continues and the lenders are asking for the company to be liquidated so that they can realise some value.

SpiceJet, another low-cost airline which has changed hand twice in the past decade – being sold by founder Ajay Singh to Kalanidhi Maran of Sun TV fame in 2010, who sold it back to Mr. Singh in 2015. Over the past year, this airline too has hit the headlines for reasons other than aviation prowess. A maintenance provider to the airline, SR Technics of Switzerland had a financing arrangement Credit Suisse, which gave the financing major to collect payments from the airline. The Madras High Court had allowed winding up orders against the airline for failing to pay $24 million to SR Technics. In May this year, the parties reached a settlement that allowed for payments in parts.

IndiGo, which is currently big daddy of Indian aviation, too has seen trouble break out between two promoter entities. Allegations of conflict of interest had marred the relationship between Rakesh Gangwal and Rahul Bhatia. The latter was appointed MD earlier this year and Mr. Gangwal resigned as director of the holding firm and articulated his plans to pare stake down over the next five years.

Where do airlines in India stand in terms of competition?

Let’s look at the latest figures released by the DGCA for October across 4 parameters. The first graph shows PLF being high for Go First, SpiceJet and Vistara.

But that is only a measure of capacity for a given number of aircraft. So, let’s look at market share in terms of number of passengers flown. Indigo is right at the top there, commanding more than half the market. If we combine the market shares of AirAsia, Air India and Vistara which are now under a single umbrella, it comes to just short of 24%.

On-time performance which is indicative of airline efficiency as well as a lead indicator of future passenger preference shows Air India come out tops at Bengaluru, Delhi, Hyderabad and Mumbai.

In terms of aircraft at their disposal, IndiGo has a higher count than the combined forces of Air India but not too far ahead considering it has achieved more than 50% market share individually with only a delta difference between itself and the AI group.

What does the future look like?

IndiGo CEO Pieter Elbers says that with the easing of travel and other restrictions post-pandemic, the country has seen a full recovery in corporate passenger traffic. In an interview to BusinessLine last week, he said the carrier operates 1,600-plus flights a day and is seeing interest to even lesser-known destinations such as Pantnagar, Agra and Bareilly. Over the next few months, if fuel costs temper and the rupee recovers lost ground against the dollar, then Indian aviation could put its woes behind for a bit.

Script and production: K. Bharat Kumar

Data collation: Jagriti Chandra

Production: Shibu Narayan

Videography: Johan Sathyadas

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