Indian budget carrier Indigo, India’s biggest and most profitable airline, has ordered 250 new A320neo jets, claimed to be more fuel efficient aircraft from the European Aircraft manufacturer, Airbus in August 2015.
The deal is a colossal boost for Airbus, which says that the IndiGo order is its largest ever by number of planes. The order would be worth $26 billion at list prices and taking into account significant discounts to such large airline customers. “It fills us with pride that IndiGo, India’s largest airline and one of the early launch customers for the A320neo, is coming back for more of our benchmark aircraft,” Airbus sales chief John Leahy has said in a statement. “This order confirms the A320 Family as the airliner of choice in the most dynamic aviation growth markets.” Deals with IndiGo have helped extend Airbus’s lead against arch-rival Boeing in orders for the fast-growing upgraded narrow-body aircraft segment. Airbus’ A320neo – an upgraded next-generation model of its A320 – competes against Boeing’s similarly updated version of its 737, the 737 MAX.
The order confirms IndiGo as one of the world’s largest operators of Airbus’ A320 family of narrow-body jets. Earlier, in January 2011, IndiGo had ordered 180 planes worth $15 billion from Airbus at the time the biggest order in commercial aviation history. IndiGo’s goal has been 1,000-jet fleet.
Also Read : IndiGo in 100-aircraft club, Spicejet plans 150
At the Dubai Airshow in November 2015, U.S. aircraft manufacturer Boeing had announced that Jet Airways, part owned by Etihad Airways, had agreed to an $8 billion deal to buy 75 Boeing 737 aircraft. Jet Airways will start taking delivery of the planes from mid-2018.
Airbus has now secured 4,100 orders for its A320neo family of jets while Boeing’s tally for its 737 MAX stands at about 2,830. The purchases are in line with Boeing’s forecast released in August 2015 that it expects demand for 1,740 planes in India over the next 20 years, at an estimated price of $240 billion. Most of these planes will be for fleet expansion and replacement of aged aircraft.
Also See :Airbus or Boeing: Whosoever Delivers early, wins Spicejet’s Order
IndiGo, Spicejet and Jet Airways have become so capable today that they shop for planes worth billions of USD. Can it not be concluded that they are able to do so because of the sheer strength of Indian Middle Class?
|The Hindu’s Survey on Indian Middle Class|
|Middle class buying power|
India’s aviation industry’s rapid growth is actually attributed to the need of the millions of Indian Middle Class who has to travel across the length and breadth of the country for one reason or the other. Be it job, education, medical treatment, business or just a vacation. The demand for air travel continues to grow, and the root-cause of it is the need. To fly has indeed become the compelling choice as compared with lengthy modes of ground travel. More and more airlines have started flights to tier 2 and tier 3 cities. Moreover, the competition between the airlines results in cheaper tickets which makes relatively easier for the Middle Class mass to afford.
Also Read : Something has changed for the better
Earlier, a year ago, airlines in India were in misery. Apart from various other problems, vicious fare wars among themselves had pushed many air carriers in the red. Experts say that the problems with the aviation sector initially appeared big, but despite major obstacles like burdensome Rules and Regulations, high jet fuel prices, lack of aircraft maintenance infrastructure, and choked airports; explosion in air travel business in India during the past decade did happen. The recent fall in oil prices helped matters, but the effect of growing Middle Class of India has simply been overwhelming. It is there for everyone to see and realise. The size and potential of the Indian Middle Class, constituting the bulk of the Indian aviation market, is so huge that it has compensated most of the faults in the system.
As a result, India is set to become the third largest aviation market by 2020. “Air travel in India will continue to grow at double digits for the next 10 to 15 years,” said Kapil Kaul, regional head of the Aviation consultancy firm Centre for Asia Pacific Aviation (CAPA). It expects domestic passenger traffic to touch 100 million passengers by 2016-17. Airlines carried 81 million in 2015, up from 15.7 million in 2003-04 when India’s first low-cost airline, Air Deccan, was launched. Domestic air passengers are expected to jump from the current 70 million to 300 million by 2022, and to 500 million by 2027. Where do these numbers come from? These are basically an integral part of 1.2 billion strong population, India’s greatest asset to date. (See IATA). New International players do see these numbers. They find it irresistible and continue to be drawn into the system and be a part of Indian Economy, in general, and Indian Aviation, in particular, despite all the conceived drawbacks.
One natural way to become a part is Equity Participation. Today, the picture is so rosy that airlines in the Middle-East are keen to join Spicejet, IndiGo and Jet Airways. The government, too, has eased FDI norms.
Several other aviation entities of the world are influenced by the Indian Aviation market. As mentioned in the beginning, Indian players have kept airplane producers Boeing & Airbus, their associated equipment manufacturers, dealers, and MROs busy who are spread across the world. If you take away those orders, Airbus and Boeing might begin staring into bankruptcy! (See Airbus couldn’t control)
This, precisely, is the global charm of Indian Aviation.
A fast-growing economy and an expanding middle class have made India the world’s fastest growing air travel market. The number of passengers keeps growing impressively and airlines are announcing flights to new destinations almost every week. The 2015-16 fiscal has been the best fiscal for Indian aviation. The fall in crude oil prices slashed the cost of aviation turbine fuel (ATF), which accounts for 40-50% of operating costs for domestic airlines. ATF prices have been nearly halved since July 2014 and fallen about a quarter over the past 12 months. However, aviation experts feel that the ATF prices are still higher, because of very high VAT, imposed by State governments, which should have come down consequent upon the reduction in oil prices. They feel that the rates must be slashed to 4% by all States. They say that in the past, socialist-leaning politicians regarded travelling by an aeroplane as a extravagance and not as a vehicle of economic and social growth. This tag ensured castigatory taxes on jet fuel air travel related products and services. As a result, ATF in India became almost 60% costlier than in Singapore or Dubai, both hub of busy aviation activities. Spicejet’s Ajay Singh has already pointed out to India’s Finance Minister Arun Jaitley : “The cost of Aviation Turbine Fuel (ATF) in India is amongst the highest in the world. ATF costs, on average, 55% more than leading aviation markets. India is ATF Surplus. India produces approx. 11.50 million metric tons of ATF per annum whereas the annual consumption is only about 5.50 million metric tons. Yet, we follow an ‘Import Parity Pricing’ mechanism.”
Reduction in oil prices enabled airlines to reduce fares, and to introduce several offers which in turn increased air traffic.
Passenger traffic continues to grow in double digits in 2016 as well with January witnessing a 22.58% surge in number of passengers as compared to the same month last year due to lower fares being offered by airlines as a result of lower operating costs. Passengers carried by domestic airlines during Jan 2016 were 7.655 million as against 6.245 million during the corresponding period of previous year as per the data produced by the aviation regulator in India, the Directorate General of Civil Aviation (DGCA). Out of a 1.2 billion population, only about 70 million Indians fly on domestic routes in a year, just a quarter of the size of air travel in China which has a similar population.
IndiGo maintained its leadership position in January 2016. In terms of the number of passengers flown during the month, the market shares were as follows:
|IndiGo’s performance boosts confidence|
1. 35.6 % : IndiGo
2. 21.4 % : Jet Airways
3. 16% : Air India
4. 13.2% : Spicejet
5. 8.1% : GoAir’s
6. 5.1% : AirAsia + Vistara + Air Costa
7. 0.4% : TruJet:
8. 0.3% : Air Pegasus :
Without doubt, India’s civil Aviation is dominated by the top 5: IndiGo, Jet Airways, Air India Ltd, SpiceJet Ltd and GoAir. At the same time, 3 year old airlines are also making their presence felt. They too have a market share. Today they operate modest fleets. The market shares of new airlines – AirAsia, Vistara, Air Costa – in January this year, doubled- up from just 2.5% a year ago. Earlier, the market share of IndiGo was 36.4%, Air India’s 18.7%, Jet Airways’ 23.2% and GoAir’s 8.9%.
Also Read : 2015 saw a few Highs and several Lows
SpiceJet was the only airline out of the established players which was able to increase its market share, from 9.4% to 13.2%. Its story resembles a miracle. The airline, which nearly collapsed in December 2014 due to a cash crunch and grounding of its planes, began to recover only after a new promoter Ajay Singh took over early in 2015. The change in management in early 2015, combined with complimentary flying economics, rejuvenated Spicejet. From a loss of over Rs 7000 million in the nine months ended December 2014, the airline posted a profit of Rs 3340 million in the April–December 2015 period. This was despite its revenue reducing about 19 per cent due to a smaller fleet and lower ticket prices.
Former Jet Airways chief executive Steve Forte said new airlines have been able to corner quick market share as a result of better mar rejuvenated conditions. “This is the normal effect of increased competition and, due to a dramatic drop in fuel costs, more flexibility in the pricing strategies. What the established carriers have as an advantage is the international networks and prime airport slots. Eventually, if the new comers go international, it may turn out to be substantial problems for the higher-cost carriers as they might not be able to match the competition,” he said.
Vistara, though had the lowest occupancy as shown in Load Factor figures – indicating the fraction of seats booked. :
1. SpiceJet : 92.1%
2. GoAir : 84.9%
3. IndiGo : 84.7%
4. Air Costa : 84%
5. Jet Airways : 82.5%
6. TruJet : 83.4%
7. AirAsia : 81.9%
8. Vistara : 74.8%.
The aviation watchdog DGCA also highlighted that the passenger load factor in the month of January 2016 has slightly decreased compared to previous month.
But Vistara was the most punctual of all airlines. On-time performance:
1. Vistara : 86.6%
2. Jet Airways and JetLite : 75.4% and
3. IndiGo : 75%
The overall cancellation rate of scheduled domestic airlines for the month of January 2016 has been 1.10%.
During January 2016, a total of 823 passenger related complaints had been received by the scheduled domestic airlines, says DGCA data. Poor customer service, baggage and flight problems formed the biggest chunk of complaints DGCA received from customers, the data showed
As expected, the airline stocks stayed firm on the bourses last year, despite the broader market being weak. Low costs and improving traffic numbers reflected in the financial performance of all the three listed airlines — Jet Airways, SpiceJet and InterGlobe Aviation (IndiGo), which made a remarkable debut on the bourses in November 2015. Jet Airways and SpiceJet have been profitable in the three quarters so far in 2015-16 and are set to end the fiscal on a high note, after many years of heavy losses. Jet Airways swung to a profit of Rs 7760 million in the same period from a loss of about Rs 850 million in the corresponding period a year ago. IndiGo bolstered its record of being consistently profitable. It almost doubled its profit year-on-year to more than Rs 14,000 million for the nine months ended December 2015.
The SpiceJet stock increased by more than 4 times – from less than Rs 20 last year to Rs 90 this year, before giving up some gains earlier this month. Still, it is at more than 3 times the price a year ago.
Jet Airways too soared more than 65 per cent before paring gains; it is now up about 31 per cent from the previous year.
(See from 765) IndiGo, after a successful IPO, rose more than 50% in less than 3 months. Delay in A320neo delivery and lower-than-expected September quarter performance — disclosed in the 3rd quarter results — saw the stock crash over the past month. It fell below its IPO price, Rs 765, before recouping some losses. The stock is now up about 11 per cent from its issue price.