Mint Explainer: Is Indian aviation headed for a duopoly?

1. How will the IndiGo deal change Indian aviation?

The total number of aircraft ordered by IndiGo, India’s largest airline, has risen to 1,330 after the latest deal. This is nearly twice the current size of the Indian aviation market, which comprises about 700 aircraft. The huge order reinforces the growth story of the Indian aviation market, which has seen demand skyrocket ever since the pandemic ebbed. With more capacity, Indian airlines are expected to offer better connectivity in both the domestic and international segments. In the global market, the latest order is likely to lead to more direct connectivity across Europe and South Asia.

2. Are Indian skies headed for a duopoly?

IndiGo has a marketshare of 61.4%, according to the latest data from the Directorate General of Civil Aviation. The combined share of all airlines under the Air India umbrella — Air India, Vistara, AirAsia India and Air India Express — stands at 26.3%. This gives the two firms a combined marketshare of nearly 90%. They are also aggressively increasing their capacity – IngiGo’s current fleet strength is 312 and Air India’s is 238. All these numbers point to a duopoly, say industry experts. Other airlines either lack a strong promoter group or the means to increase their fleet size.

3. How will airfares be affected?

Airfares in India are not regulated by the government and depend purely on supply and demand. Of late, supply-chain issues have hampered the delivery of engines and aircraft. In addition, the temporary suspension of operations by Go First has also reduced the number of flights available by 150 to 200 a day. This has resulted in higher airfares. But as airlines increase their capacity, fares are expected to stabilise in the long run.

4. Is this the end of big orders by Indian airlines?

No. Aviation consultancy firm CAPA India estimated in February that Indian airlines are likely to order 1,500 to 1,700 aircraft over the next two years. Since February, Air India and IndiGo have placed orders for 970 aircraft. New orders are expected this year from India’s youngest airline, Akasa Air. Air India also has the option to buy another 370 aircraft, which it can convert into firm orders. Simultaneously, as older aircraft are retired, they need to be replaced. Industry veterans thus predict that airlines backed by strong promoters will continue to order more aircraft, given the huge potential demand in India.

5. Why are airlines bullish on India?

India is an under-penetrated market. It is one of the fastest growing economies in the world and has an aspirational middle class. The country is also building several new airports, which will further fuel demand. The increase in flyers since the pandemic has been an encouraging sign for airline companies. They carried approximately 13.2 million passengers in May, surpassing the previous record of 13.02 million in December 2019. In fact, January and February – considered lean travel months – saw more average daily flyers than the peak travel months of October and November.

Updated: 21 Jun 2023, 01:08 PM IST