“Growth is assured but another 20%+ year will be a miracle & dream”. This was the last line of the blog last year and what better way to start this one with the same since that has come true. Indian aviation market grew by 17.3% in 2017 with airlines carrying 117.17 million passengers. These numbers continue to make India one of the fastest growing & largest air travel markets in the world.
These numbers came on the backdrop of a stellar December when three (Spicejet, Vistara & Jet Airways) of the seven major carriers recorded highest load factors for 2017, of which Spicejet and Vistara recorded their individual bests in the history. Airlines carried 11.24 million passengers in December, highest ever in a single month.
Air India grew its domestic traffic by 6.5% while private carriers saw a growth of 19.1% in 2017. Every airline except Go Air has a story to tell in 2017, mostly a happy one. Hopefully Go Air will make up for this in 2018 by opening up flights to international destinations soon.
2018 will be challenging, the last time oil was north of $60 per barrel (Apr 2015), AirAsia India had 4 aircraft, Vistara had 6, IndiGo has seen 60+ inductions since then while Air India has grown on the international side with long haul flights.
The year gone by
- Air Costa & Air Carnival couldn’t see through the end of the year
- Zoom Air & Air Deccan started operations
- Low cost carriers gained further with 65.4% of passengers flying LCCs. This number stood at 63.8% in 2016.
- Jet Airways and Air India lost market share while all others gained
- IndiGo placed order for the ATR72-600 and took delivery
2018 will be a big year for Indian Aviation – two or three airlines will launch international services. While Vistara is certain to do so, will the second airline be Go Air or AirAsia India or both of them will start before the end of 2018 will something which will be looked at closely.
Headwinds for market leader? This year could well be a tough year for IndiGo. The increased challenges due to a second fleet type (ATR), opening up new stations to sustain growth, lack of expansion at Delhi & Mumbai, perfecting the network model are just some of the challenges and all of these will put pressure on unit yields and profitability at operational level.
With its size and limited growth at metros, I foresee that the airline will look to make a lot of network changes. Will they stick to their idea of not having ATR & Airbus on same routes? From single fleet and point to point to multi fleet and network carrier – the airline has come a long way in disproving its own hypothesis. We could hear some other tone by the time 2018 ends. While it is absolutely essential to reinvent, it is equally important to do it well.
Jet Airways: The airline which continues to be in turnaround will have few difficult questions to answer this year. Its relationship with EY & its impact on the Frequent flier program which is owned by Etihad, deployment of B737 MAX8 aircraft, delivery of B787s and equity sale to AirFrance-KLM/Delta with or without joining Sky Team. My take – it could be another year of announcements but little progress on ground and the airline will continue to lose out on the domestic front with a lot of network changes outside the major metros.
Where will it deploy the additional capacity will be a challenging thing to decide for the airline with the cut throat competition, not so good market conditions in the traditional stronghold of gulf region and higher cost of operations compared to rivals.
The lower on-time performance figures for almost half of 2017 only adds fuel to the fire.
Air India: Will it be sold or not in 2018? It will be a miracle if the airline is sold within the next eleven months. Till then the airline still needs to utilize the dreamliners efficiently and with first break in the Delhi hub with a non-stop from Amritsar to Birmingham, will it lead to more such flights? Apart from the much anticipated Washington flight, there may not be much for Air India this year, but subsidiary AirIndia Express could expand into international from tier 2 cities in the country. Expansion to Central Asia? Probably, that would be the new area to look at for the airline.
SpiceJet: With the wide body plan abandoned, the airline will look to selectively grow its network and continue to be open to frequent route changes to make the most of seasonal trends. Round 2 of UDAN-RCS will see it expand further into newer routes. Maintaining monopoly on as many routes as now will be difficult on the back of IndiGo’s entry into the turboprop segment.
Go Air: I got it wrong completely for this airline in the last predictions. Hopefully, the airline will start international operations in 2018, but before it looks for destinations, it has to also look for people to fill up positions at CXO levels and that could then decide when the airline finally plans to list itself. With a formidable number of aircraft on order, getting a suitor will be easy but so far there has not been any talk about it.
AirAsia India: While the airline was silently expanding in 2017, the airline is still behind sister airline Vistara which started later. It could well be the third airline to go international in 2018 after Go Air and Vistara. With critical mass, this could be the year when it could record one quarter of operational profits.
Vistara: Everyone expected an order from this airline last year – for Wide body as well as additional Narrow body aircraft. None of this happened. However, the airline made its intentions clear – to fly international by Apr/May of 2018 with existing fleet type. Will the TATAs wait for the verdict on Air India before committing to wide body order of Vistara? Last years predictions on short haul routes for the airline have come true & this year could be of getting more interline and code-share services.
What to look forward in 2018?
Oil: The price will dictate how airlines price themselves and after last four years of price elasticity, we would know if India has matured as an air travel market and we have been able to commoditize when the fares were low.
737 MAX: Jet Airways and Spicejet would induct the B737 MAX8 in the second half of 2018. Both the airlines could use this to refresh their product offering.
A321neo: IndiGo has announced that it would induct the A321neo in the second half of 2018. Does this mean that they will start destinations beyond the range of their existing A320s or will they be used to augment capacity on metro routes? It will be a mix of both I believe, but the international operations will put pressure on cost.
PW engines: A full solution to the Pratt & Whitney engine for the A320neo is still not in sight. It was widely expected that the issues would be resolved in phases by first quarter of 2018, but prior deadlines have been missed, so we will not know till the airlines, aircraft manufacturer and engine manufacturer give in their comments.
UDAN: The second phase results should be out in public soon and scheduled airlines would be itching to start operations as soon as possible. This will only strengthen their operations at major metro airports.
Infrastructure constraints: The unending issue of constraints continues unabated. However there is hope in the second half of 2018 with some capacity addition at Bengaluru and Hyderabad expected to be operational. Airlines will be forced to look at newer airports to night park their aircraft and Airports Authority of India has started working on getting 250+ bays operational at 20+ airports across the country.
Growth: There has been some discipline in induction by airlines and that would mean that growth is unlikely to touch 20% for most of the year. Infact, it wont be surprising if it lowers further and stabilizes around 13-16% range for better part of the year.