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Indian Airlines Hopeful Of Mitigating Current Challenges The aviation industry is at a juncture marked by changing market dynamics and rapid innovation. Airlines such as Air India, Vistara, Air India Express, Akasa Air are adopting measures to navigate through a set of impediments

By Shrabona Ghosh

Opinions expressed by Entrepreneur contributors are their own.

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While IndiGo reported a profit of INR 1,894.8 crore for the quarter ended March 31, 2024, the Indian aviation industry might not reflect the same sentiment. Domestic airlines are likely to widen losses to $400 million-$600 million in FY25 despite a likely rise in traffic, according to aviation consulting agency CAPA. India is currently the world's fastest-growing aviation market with demand surpassing the supply of planes and the airlines have been facing a slew of challenges in the recent past.

The aviation industry is at a juncture marked by changing market dynamics and rapid innovation. Globally, the sector is rebounding from the unprecedented impacts of the COVID-19 pandemic. Airlines are expanding their networks and modernizing fleets to meet surging demand. CAPA India estimated domestic passenger traffic to grow to approximately 161 million - 164 million from about 154 million and international traffic is set to reach 78 million from 75 million.

SpiceJet, which saw financial and operational challenges, is set to raise approximately USD 250 million or INR 2,000 crore by August, and expects to expand capacity by leasing aircraft, said Ajay Singh, chairman, SpiceJet. "SpiceJet is cleaning up its past, our flights are filling up quickly, we are reviving capacity and looking for drying leasing of planes and expecting to increase our aircraft fleet to 200," the chairman added.

Ajay Singh emphasized the need of government cooperation for the rapid growth of the aviation sector, "The government cannot keep taxing the aviation sector as a rich man's product and expect lower airfares for the common man," he said. The maximum expense of airlines is towards Aviation Turbine Fuel (ATF); ATF as of now does not come under the Goods and Services Tax (GST) regime.

In the past few months, canceled flights, dissatisfied frequent flyers and reprimanding from the regulators have become a regular activity for Vistara and Air India. The Tata Group stands on the cusp of a major aviation merger consolidating AirIndia, Vistara, AirAsiaIndia and AirIndiaExpress, this move can either make or break the Tata Groups aviation business. In the last few weeks, the two airlines have been under the public ire and its image has been severely battered. Aviation watchdog Directorate General of Civil Aviation (DGCA) issued a show-cause notice to Air India in the last week for inordinate delay of at least two international flights and failure to take due care of passengers. The incumbent challenges plaguing the airlines is a standard issue when two culturally diverse organizations are amalgamated.

As part of revamping Air India, its chief Campbell Wilson said that Air India will be retrofitting more than 100 planes and has ordered around 25,000 aircraft seats. He emphasized that plenty of things are going on as part of the transformation at Air India and the focus is on integration, growth, optimisation and customer experience.

Vistara recently faced significant disruptions due to pilot woes and now the operations are getting stabilized as the airline is making course corrections, its CEO Vinod Kannan said. The airline has tweaked its rosters and network to ensure that a repeat of April doesn't happen again. In April, the carrier was forced to cancel more than 300 flights after pilots went on mass leave.

As the merger process has started Kannan expressed hope that all the required approvals for Vistara's merger with Air India would come in the next few weeks. Talking about the synergies of the merger, he said, "Vistara will help Air India make customers the priority and focus of attention. The merger would enhance our market presence while maintaining operational integrity. Competition, cost and customer are the three intricate pillars that will fuel our growth."

The intricate process of merging full-service carrier Vistara into Air India is expected to be completed by the end of 2024.

The other airline under the Tata Group, Air India Express, is in the process of merging AIX Connect, formerly AirAsia India. "In 2024-25, a lot of synergies will be unlocked and there will be a laser focus on the cost side. We expect to grow by 40 per cent," said Air India Express MD, Aloke Singh.

India's youngest airline, Akasa Air, in September last year was forced to cancel about 24 daily flights when around 43 pilots abruptly resigned to join rival carriers without serving their mandatory notice periods. The airline back then had stated before Delhi High Court that it was in a state of crisis and it may shut down. Fast forward, the airline is back on track with stabilized operation and is over the pilot conundrum. Founder and CEO, Vinay Dube, said, "We have stopped hiring pilots. We have plenty of pilots for our current fleet and we are looking forward to growth with the current strength as we are focused on enhancing their skill set."

With a market share of more than 60 per cent in India, IndiGo CEO Pieter Elbers said that having a strong balance sheet is an asset. IndiGo is strengthening its future with the introduction of wide-body aircraft to its fleet and all-electric air taxi service in India. In April, the airline agreed to place an order for 30 Firm A350-900 widebody aircraft, powered by Rolls Royce's Trent XWB engine. Currently, IndiGo operates over 350 aircraft. Last year, in June 2023, IndiGo placed an aircraft order for 500 aircraft with Airbus. With that, the outstanding orderbook of A320 Family aircraft stands at almost 1,000 aircraft which are yet to be delivered well into the next decade.

Commenting on its growth plan, the CEO said, "We will focus on the next phase of international expansion on lesser-known destinations while strengthening our presence in popular markets. We are also looking at various options for financing our widebody fleet."

While some airlines have adequate liquidity or financial support from a strong parent, supporting their credit profiles; others will remain under stress. Overall, the Indian airlines' ability to raise yields proportionate to their input cost increase will be key to expanding profitability margins. According to the International Association of Air Transport Association (IATA) report, an aggregate return above the cost of capital, however, continues to elude the global airlines as the industry is expected to earn a 5.7 per cent return on invested capital, which is 3.4 per cent below the average cost.

(The airline CEOs were speaking at the CAPA India Aviation Summit 2024)

Shrabona Ghosh

Correspondent

A journalist with a cosmopolitan mindset. I lead a project called 'Corporate Innovations' wherein I cover corporates across verticals and try to tell stories on innovations. Apart from this, I write industry pieces on FMCGs, auto, aviation, 5G and defense. 
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