- IndiGo, India’s largest airline, just set a new world record by placing an order for 500 planes.
- This historic agreement comes on the heels of Air India’s recent order for 470 aircraft.
- This article examines the revolutionary influence of IndiGo’s order and its ramifications for Indian aviation’s future.
The Order of IndiGo and Its Consequences
- Increasing the Current Fleet Size: IndiGo’s deal raises the company’s overall aircraft count to 1,330, which is nearly double the size of the present Indian aviation market.
- Expanded capacity is intended to improve domestic and international connections.
- As a result of the record-breaking order, direct connection across Europe and South Asia has improved.
A duopoly is being debated
- IndiGo’s market share is as follows: According to the Directorate General of Civil Aviation, it has a strong 61.4% market share.
- Air India Umbrella: Air India, Vistara, AirAsia India, and Air India Express have a combined share of 26.3%.
- IndiGo and Air India have a combined market share of 88%, indicating an industry duopoly.
- Competitors’ Obstacles: Other airlines are struggling to scale up due to limited resources and powerful promoter groups.
Effect on Airfares
- Unregulated Air rates: In India, unregulated air rates are subject to market forces.
- Supply Chain Issues: Delivery delays caused by supply chain issues have an impact on fares.
- Impact of Temporary Suspension: The operational suspension of Go First results in lower flight availability and increased air fares.
- Long-Term Stability: Fares have the potential to stabilise as airlines increase capacity over time.
Orders for Future Aircraft
- CAPA India expects that Indian airlines would order 1,500-1,700 planes during the next two years.
- Recent Orders: IndiGo and Air India have already ordered 970 planes.
- Additional orders are expected from Akasa Air, a new airline in India.
- Conversion Options: Air India’s optioned 370 aircraft can later be converted into firm orders.
- Replacing an Ageing Fleet: As older aircraft retire, fresh orders for efficient and contemporary replacements are required.
India’s Pleading to Airlines
- Economic Growth and a Growing Middle Class: India’s fast-growing big economy and rising middle class generate high demand for air travel.
- Untapped sector Potential: The aviation sector is underserved and offers tremendous growth prospects for airlines.
- Airport Development: The construction of new airports around India increases demand for air travel.
- Passenger counts have surpassed pre-COVID levels, demonstrating a resilient rebound in the sector.
Challenges Faced by Indian Aviation’s Debt Burden
- Given the airline’s current debt, the Tata Group’s acquisition of Air India confronts the issue of raising sufficient finances.
- Financial Implications: Securing a loan of the requisite size may prove difficult, affecting the deal’s financial feasibility.
- Clause of “Made in India”: In order to ensure immediate economic advantages for the Indian economy, the final agreement must include a Make-in-India clause.
- Concerns: Without proper protections, India may become merely a customer of commodities, with no meaningful economic benefits.
- Costly Operating Environment: The Indian aviation business has high operating costs, including as fuel costs, airport fees, and taxes, which can have an impact on profitability.
- Concerns about profitability: The industry must handle these cost issues in order to maximise the profits from the influx of new aircraft.
- Outdated Infrastructure: Inefficient operations are hampered by obsolete air traffic control systems, insufficient ground support services, and limited airport capacity.
- Limitations of the Regulatory Framework: The sector is challenged by regulatory constraints and limitations that stifle growth and innovation.
Conclusion
IndiGo’s record-breaking aircraft order and Air India’s recent acquisition are expected to revolutionize the Indian aviation industry, boosting economic growth and benefiting domestic and international travelers.
Source: https://m.economictimes.com/industry/transportation/airlines-/-aviation/indigo-airbus-deal-every-dollar-invested-in-civil-aviation-yields-3-1-in-terms-of-new-growth-says-scindia/videoshow/101134877.cms