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Whether it's too early or too early, the post-COVID-19 Indian aviation industry is looking for phenomenal rapid growth. Unfortunately, airlines were not prepared for this. The grounding of aircraft, especially due to lack of spares and engines, is a global phenomenon and a result of the disruption of production and manufacturing processes during the pandemic.
Aviation consultancy CAPA India, in its mid-year outlook for 2023, estimates that India's aviation industry could have as many as 200 aircraft grounded by the end of March 2024, a harbinger of a larger crisis. I predicted that would happen. This results in operating costs being hit by ground costs, increased lease rentals due to leasing additional aircraft to offset ground capacity, higher lease rates, and lower fuel efficiency (older aircraft acquired on spot leases). ) occurs. , negatively impacting the airline's cost structure. However, some impact can be absorbed with healthy power generation, high passenger load factor (PLF), and partial compensation provided by the engine OEM.
Flight cancellations, mileage complaints and reprimands from regulators are now the norm for Indian airlines. What does the industry need to change to overcome these challenges? We tend to look at the industry from the perspective of a more mature aviation market. Do we need to take a step back?
Vistara crisis assessment
Uncertainty is in the air. The Tata Group is in the midst of a major airline merger that will bring together Air India, Vistara, AirAsia India and Air India Express, a move that could make or break the Tata Group's aviation business. In recent weeks, Vistara has faced public ire and its image has been badly tarnished.
There are many reasons why Vistara is in its current situation, from streamlining pilot payments with Air India to poor roasting.
“Perhaps one of them is the rationalization of pilot pay at Air India, with some very poor rosters and allegations of poor internal communication that has upset pilots. “There is a feeling of insecurity among the department's employees about their jobs.” Their status in the combined airline is a big issue, with pending command training ahead of the merger, which has been postponed for nearly a year. Any pilots that are not completed will be lost to the new combined company,” said Sanjay Lazar. He is an aviation expert and he is the CEO of Avialaz Consultants.
The unilateral decision of the management is also to be condemned, “There were differences in work culture and remuneration standards between Air India and Vistara, especially for the pilots.'' Without giving confidence to the pilots, they unilaterally imposed minimum flight hours. The management's decision to shorten the period also contributed to the crisis,'' said Ashutosh Vashist, Additional Secretary, Ministry of Civil Aviation.
The existing challenges plaguing airlines are common when two culturally diverse organizations merge. This similarly happened when Indian Airlines merged with Air India. “As an independent company, Vistara had its own personnel and remuneration policies, but a merger with Air India (which, by the way, is much larger than Vistara) would not bring Air India to the level of Vistara. , Vistara's staff will have to make compromises.Secondly, the lack of problem-trained pilots is because there are not enough aircraft for pilots to take command. The situation is being resolved and should happen soon,” explained Arun Lohiya, Chief Operating Officer, CAD Ventures Pvt. Ltd. – A group company of Cadila.
Air India merger: a harbinger of bigger problems?
Air India has undergone numerous mergers and spin-offs over the past three decades, starting with Vaudhut, Alliance, Air India Charters (later AIX), AIESL, AIATSL, HCI, and AI-SATS. Top management knows this very well. The Tatas have been planning this for some time and appear to have taken care to bring in the best experts from around the world to help alleviate the trauma.
This merger was essential to achieving growth and economies of scale, leveraging networks, and lowering the platform's relative costs of operations. “Given that almost 50 percent of AI employees are new hires, we don't think this merger is as much of a cultural change as the AI-IA disaster. Pilots, systems, in-flight services, and management culture will need four I think Air India is already focused on those, but every airline merger that has taken place around the world has had deep pains and rifts, and Tata has The company is merging companies, something never seen before in aviation history. Only once,” Lazar added.
The encounter between two diverse cultures is always fraught with problems. For example, Hindustan Motors and Premier Automobiles, makers of the famous Ambassador and Premier Padmini cars, failed to change their labor practices despite acquiring newer technology and foreign partners.
“Unfortunately, Air India has a traditional staff that it has enjoyed at the expense of the Indian government and never developed a professional culture. Vistara, with significant input from Singapore Airlines, This is a well-tested SA model. This change will be long drawn to the end. 'Air India employees are retiring or being fired, and remedial action to change behavior at this age is extremely difficult. ” said Siad Arun Lohiya.
Vashist shared a similar opinion and said, “The current situation at Vistara could be a harbinger of bigger problems in the integration of Air India and Vistara. If the managements of both airlines do not learn from this experience. “Similar issues can arise at different levels,” he added. hierarchy. “
No blues at IndiGo?
Although not necessarily the world's favorite airline, IndiGo has been a market leader for nearly 15 years. They have turned low-cost operations into an art form. There have been undercurrents from time to time, such as pilot roasters and operational issues, but they are only temporary. Overall, IndiGo has some good HR policies for its staff and leverages technology to innovate and stay ahead of the competition.
However, this airline also has its drawbacks. Recent information indicates that 69 aircraft have been grounded due to major engine problems, putting pressure on flight operations. “The engine situation (Pratt & Whitney) has already caused Go Air's collapse and needs to be addressed. Compared to other Indian airlines, IndiGo is better managed and , all aspects are being addressed with continuous expansion of the fleet.''However, with a near-monopoly situation, the airline is starting to feel arrogance and a decline in service standards,'' Lohiya said.
Vashist also shared that IndiGo needs to address issues to avoid potential challenges, saying, “The company's control over multiple routes and airports gives it an unfair advantage.'' Indigo is likely to remain the market leader, but its deep-seated issues need to be addressed.”
Going forward, IndiGo needs to make two to three major changes to innovate. “Airlines need to introduce widebodies as part of their fleets to maximize RASK, optimize CASK, and target the North American market. They need to introduce smallbodies.” The premium section of body flights has introduced some kind of points card to increase top-line revenue and offer a wider range of services, but LCCs have not had success with transcontinental and long-haul widebody flights. History has shown that Indigo's lean efforts will definitely have the best chance of success due to its operating platform and innovative capabilities,” said CEO of Avialaz Consultants.
According to ArenaJet statistics, in 2024 there will be 514 fully exclusive routes and 4,537 fully exclusive weekly flights. There are at least 14 airports in India that are exclusively served by IndiGo. This is despite the government being the owner of his PSU National Carrier until 2022, when private LCC airlines became dominant.
“IndiGo has become the third largest airline by market capitalization due to its strong numbers. IndiGo has been a market leader, market disruptor and market innovator in all aspects for a very long time. On the other hand, Air India is a full-service airline that operates 2/3 classes and is located in a completely different region than IndiGo, an LCC, and its aviation platform is very different. They are unique and more premium and rely on higher classes for higher returns. They are present in the Indian market and will continue to be a strong player for many years to come.” Lazar said.
IndiGo's strong position in the market is evident at the micro-level, adding: “The Air India-Vistara merger is still in its early stages and is unlikely to have a significant impact on IndiGo's market leadership in the near future.” added.
How can India navigate the current challenges?
In the aviation paradigm, we are in a similar situation as the United States was 20 years ago. The world's most advanced aviation market, the United States, also faces manufacturer issues, security issues, safety shortcut allegations, mid-air door explosions, engine explosions, aircraft groundings, routine regulatory oversight, and more. . Yet it continues to thrive because it has built a very strong aviation ecosystem within the country. The grounding of the aircraft is also the result of an engine problem at P&W that affected hundreds of planes around the world. While the US has over 2,000 airports, India has just scratched the surface with 170. The US has a fleet of 3,000 aircraft across its top three airlines, while India has an odd 800 aircraft across its five airlines. In the United States in 2021, she had more than 7,117 aircraft, of which 5,000 were her 100-passenger aircraft or more. US airlines carried 862 million passengers in 2023 (down from 929 million in 2019), but in India that number is only 190 million in 2023. . This shows two aspects. It also shows that India has to achieve tremendous growth both domestically and internationally.
“At least we have a runway of at least USD 5 billion in aircraft orders, airports, infrastructure development in front of us. What India is witnessing is a second wave of consolidation and growth; Already the third-largest aviation market, DGCA is a powerful independent self-regulatory body that will meet the future needs of accident investigation agencies such as the US NTSB, as well as passengers covering airlines, airports, etc. A passenger/operating body that helps monitor issues, adopts international aviation laws and conventions, and provides an alternative dispute resolution mechanism.At that time, India is a strong, vibrant and very mature market. I believe that after the 2024 Lok Sabha elections, rules and laws will be in place and we will overcome some of the challenges we are currently facing. /A few more airlines will be set up in FY2025,” Lazar explained, adding that India has the capacity to absorb at least one or two full-service airlines. . The LCC segment has deep pockets.
India also needs regional airlines like Star Air and Fly91 to connect smaller cities, and that's where the true regional aviation explosion lies.
The Indian aviation industry is likely to face further challenges in the near future. The lack of effective regulation and the tendency of regulators to issue instructions without due consideration is a major concern. “Despite no major changes in the environment, DGCA relaxing new rest norms for pilots and BCAS issuing show cause notices demonstrate the need for a more proactive approach to ensure stability in the aviation industry. It shows gender,” Vashist added.
ICRA expects the net losses reported by the Indian aviation industry to decline significantly to ~INR. 30-40 billion more than INR in FY 2024 and FY 2025. 170 billion to 175 billion in FY2023. Supply chain challenges and engine failure issues remain headwinds in the short term. The key to expanding profit margins is whether airlines can increase profits in proportion to increases in input costs.
Some airlines have sufficient liquidity and financial support from strong parent companies to support their credit profiles. Credit metrics and liquidity profiles for other countries will remain under stress in the near term, although they have improved somewhat compared to past years.
