Key issues that we're tracking in Indian aviation

We recently released the mid-year update to our annual outlook for FY2025. However, there are a number of key issues that we track very closely, which extend beyond the current financial year, as outlined below:

Serious geo-political and supply chain risks

• Both have the potential to be highly disruptive.
• Increasing global risks, especially in the Middle East.
• Supply chain risks like to persist for the next 12-24 months. A worsening of the situation cannot be ruled out.

Structural profitability fault lines may re-emerge post normalisation of supply side issues

• Domestic profitability unlikely once supply side issues are resolved, due to prospect of significantly higher capacity, especially after SpiceJet Limited 's recapitalisation.
• Regional international profitability unlikely, as up to 200, possibly even 250 NBs are expected to be deployed by Indian carriers alone on short haul international routes over the next 5 years, which will be supplemented by foreign carrier capacity.
• Long and ultra-long haul profitability uncertain, with IndiGo (InterGlobe Aviation Ltd) ’s long haul NB and debut of WB operations.
• Profitability will be impacted by the opening up of bilaterals and continuing interest of foreign carriers to operate to India.

?Liberalisation of market access

• Bilateral seat entitlements have been largely frozen since 2012, but are expected to start opening up within 6-9 months.
• CAPA India expects 50,000-75,000 additional weekly seats to be approved initially.
• UAE, Qatar and Singapore may be among the key beneficiaries.

?Labour discontent simmering

• Under-the-radar issues could possibly lead to industrial instability, especially among pilots, cabin crew and maintenance staff.

?Emergence of pilot shortage

• A shortage is likely, especially among commanders, given fleet expansion and aggressive recruitment by Middle East carriers (particularly Riyadh Air | ????? ?????? and Emirates ), and as IndiGo starts recruiting for WB operations.
• Although there is significant bench strength in place at all airlines at present, this could be impacted by the above and as a result of pending change in Flight Duty Time Limit regulations, which could lead to a sharp dip in the availability of commanders.

A new IndiGo is emerging – an FSC Lite model will further fortify its market leadership position by delivering value to passengers

• Introduction of business class on certain domestic routes – launching this week - and selected international routes, is likely to disrupt business class and even premium economy pricing.
• Business class, if introduced on Airbus Aircraft A321XLRs and A350s may even offer fully-flat beds. These longer haul aircraft may possibly operate under a separate brand.
• The carrier could seek to join an alliance to support long and ultra long haul operations. The Delta Air Lines / 法航 - KLM Royal Dutch Airlines / Virgin Atlantic alliance, or even SkyTeam may be potential options, amongst others.
• IndiGo is focused on international leadership, which is clearly visible, while maintaining its domestic fortress.
• The next growth cycle is likely to be led by ATR equipment, a largely under-penetrated market.

Possible competitive response by Air India Express – which is likely to have a 110+ aircraft fleet by Mar-2025, making it a formidable operator

• Post its successful and smooth merger with AirAsia India, strategic clarity will emerge on how to compete effectively with IndiGo.
• The carrier will need to evaluate whether the introduction of a functional business class will be required to compete with IndiGo.
• Widebody equipment could potentially feature in the airline’s fleet in the medium term.
• The ongoing product and service revamp will continue.

Transformation of Air India - positive financial outcomes reflect that transformation is working

• Despite tremendous complexity, Air India Limited 's transformation is visible in a number of areas.
• The new aircraft order reflects confidence and a long-term resolve.
• The ability to manage a complex transformation in the face of disruptive competition from IndiGo will be key.
• Competitive dynamics on long and ultra long haul routes will change strategically in the next 1-2 years as a result of the liberalisation of bilaterals and IndiGo’s expansion, although Air India will have a strong headstart.?
• The impact of the Air India- Vistara - TATA SIA Airlines Ltd. merger on the full service market will need to be tracked. The carrier will have to carefully assess how much premium capacity is required in the domestic market.

Multi-hub operations?

• Air India and IndiGo are both focusing on developing hubs at Delhi, Mumbai and Bangalore International Airport Ltd for strategic dominance.?

Recapitalisation of the airline sector

• An estimated USD400-500mn of equity infusion will be required between Akasa Air and SpiceJet. This is in addition to SpiceJet’s recent capitalisation.