IndiGo, Air India Create History: Harbingers of New Heights to Industry
Air India and IndiGo, two Indian airlines, took center stage at the most recent Paris Air Show. The two have demonstrated a high growth trajectory for the Indian aviation industry by placing orders for 970 aircraft this year in less than five months. The order sums up to 1000 aircraft, showcasing both airlines' aggressive expansion goals and the potential for growth in the Indian aviation sector.
It all happened in a span of months; two Indian airlines placed the largest and second-largest orders for passenger aircraft in history, blessing 2023 as an eventful year for the nation's aviation sector. Originally with 470 aircraft, the Tata-owned Air India placed a big order with Airbus for 500 passenger aircraft in February. However, within months, IndiGo, another Indian carrier, shattered that record by placing an order for 500 A320 Family aircraft.
By far, IndiGo, the largest airline in India based on market share, has broken the record for the largest single purchase agreement in the history of commercial aviation. The latest agreement shows that IndiGo has increased the total number of Airbus aircraft it has ordered to 1,330, solidifying its position as the largest A320 customer globally.
During the Paris Air Show in 2023, Guillaume Faury (CEO of Airbus), Christian Scherer (Chief Commercial Officer and Head of International for Airbus), Pieter Elbers (CEO of IndiGo), Rahul Bhatia (Promoter & Managing Director of IndiGo), and Dr. Venkataramani Sumantran (Chairman and Non-Executive Independent Director of IndiGo) signed the historic purchase agreement.
A Turbulent Time for Indian Aviation Industry
Undoubtedly, Indian airlines experienced a difficult period lasting more than two years throughout the Covid-19 outbreak. However, since then, there has been an unheard-of demand for air travel, which airlines are finding difficult to provide.
Likewise, the data from the Directorate General of Civil Aviation (DGCA) indicates that the domestic air passenger traffic increased by 15 percent year over year to over 13 million in May 2023.
Based on the current market share, IndiGo and Air India are now the two largest airlines in India. IndiGo holds a market share of more than 60 percent by itself. On the other hand, Air India, Air Asia India, and Vistara, part of the Tata Group, have witnessed growth in market share to over nine percent, 7.9 percent, and nine percent, respectively.
Even though its market share increased to 4.8 percent in May 2023, Akasa Air—the most recent entrant—is still far behind the competition while preparing to acquire larger aircraft and aggressively growing its operations.
Thus, the plane orders make sense for the airlines, as they appear to be betting on the economic expansion in India and the consequent surge in demand for domestic and international air travel.
Timeline to Reach Target
The two airlines are preparing to operate on as many routes as possible with the record deals. The government intends to expand the nation's airport network from 150 to 200 over the course of the next five years as part of its swift efforts to connect isolated places by air. Currently flying 300 aircraft, IndiGo is scheduled to receive about 470 more from an earlier order with Airbus, hoping to reach this by 2030. With this new purchase, the airline will have more than 1,500 orders altogether for the ensuing 10 years and beyond. The more intriguing part is that IndiGo alone would have more than twice as many aircraft as India currently has—700 total—across all carriers.
As of March 2024, the airline anticipates having six A350 aircraft in its fleet. With this massive expansion, Air India hopes to establish itself as a serious player in the Indian aviation market. It is also a top airline that provides international travel between the US and India.
Variety of Traveling Options
Air India's fleet expansion action encompasses a broad range of aircraft types. They have placed an order for 40 A350-900/1000, 210 A320/321 Neo/XLR, and 190 737-Max aircraft from Boeing, along with 20 787s and 10 777s from Airbus.
This varied assortment of aircraft highlights Air India's dedication to providing travelers with a variety of travel choices while upholding operational effectiveness.
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With IndiGo and Air India making major strides toward the largest airline fleet growth, the Indian aviation sector is undergoing tremendous changes. Their faith in the future of air travel in India is evident in these calculated actions, which promise better services and more options for consumers.
According to analysts, the Indian aviation business is expanding quickly; there is plenty of potential, but there are also significant concerns. Consider the recent case of Go First, the low-cost Indian airline that is protected by bankruptcy following a protracted period of extreme financial instability. The largest worry is that it is the third Indian airline to fail in just 11 years, despite the fact that it placed the blame for its problems on US aircraft engine manufacturer Pratt & Whitney. It is important to note that Go First's bankruptcy filing, which shields it from lessors of aircraft, may have negative effects on the aviation industry as a whole.
Headwinds to be Wary of
After the bankruptcy protection plea filed by Go First was accepted, lessors of aircraft expressed concerns regarding the limitations placed on the ability to reclaim their assets in the event of default. Another low-cost carrier, SpiceJet, is dealing with a similar issue as lessors are concerned about outstanding debt.
Although Go First's bankruptcy and the ensuing moratorium have put lessors of aircraft in danger, things might end up worse for passengers and other local carriers in India.
Following the Covid-19 outbreak, demand for air travel increased dramatically in India, the third-largest aviation market in the world. As a result, airlines operating in the nation are struggling to supply enough planes to fulfill the demand.
Leasing rates could rise dramatically in the future due to the actions of aircraft lessors, who have already labeled India as a risky jurisdiction. This would result in higher operating expenses for Indian carriers, which would then be passed on to customers.
The Go First incident could not have happened at a worse time, as aggressive fleet expansion is being sought by Indian carriers such as Air India and IndiGo to keep up with the increasing demand.
Regarding the record-breaking number of aircraft orders by Indian airlines, several experts are skeptical. They believe that the over-ordering of aircraft might not have a significant effect on IndiGo and Air India's market shares. The two airlines already outperform competitors in terms of scale, with a combined domestic market share of over 80 percent.
Another scenario is that as demand declines following the pandemic, the current surge in air travel may come to an end. Even so, the airlines stand to gain from their record orders since they will be able to maintain their fleet and be prepared for any future opportunities.