Where is the Indian aviation headed?
Indian aviation reported an estimated record loss of just over US$ 2 billion in the last financial year. CAPA India Outlook 2012/13, forecasts an outlook for the Indian aviation industry in the present financial year.
Weak
balance sheets, increasing costs, regulatory uncertainty, a sluggish Indian economy and a difficult global environment will continue to pile the pressure on airlines, especially the poorer performing carriers. However, this may in turn create market opportunities to exploit for those that are better positioned.
Expected domestic capacity growth of 7-8%
Indian carriers are expected to add approximately 24 aircraft during the year, which includes 8 Q400s to be inducted by SpiceJet. This corresponds to the equivalent of 20 narrow body aircraft on domestic routes. CAPA estimates this would result in capacity growth of 7-8 per cent in a best case scenario.
Domestic growth of 8-10%
Domestic passenger traffic will grow by 8-10 per cent in this financial year and more likely towards the lower end of the range. Much will depend upon the impact of oil prices and other input costs on airfares.
Airlines might post a loss of US$ 1.3-1.4 bn
Air India is once again expected to be the worst performer in the industry and to report a loss of INR70 billion (US$ 1.3 billion). Kingfisher Airlines is projected to lose INR12-14 billion (US$ 220-260 million). However, the remaining four private carriers combined could post a modest profit of approximately INR11 billion (US$ 200 million).
Jet Airways to be the primary beneficiary
Although the troubles facing Air India and Kingfisher Airlines have been positive for all other carriers, Jet Airways has been and will continue to be, the largest beneficiary. Kingfisher’s dramatic contraction from 66 to 16 operational aircraft, of which half are regional ATR aircraft, has left the domestic business market open for Jet Airways. Similarly, the temporary industrial action on Air India’s long haul international routes has driven North American and UK traffic to Jet Airways.
Air India could face a temporary shutdown
Air India is expected to enter a defining period. The merger between Air India and Indian Airlines is defined by the fact that the most critical issue, namely that of the integration of human resources has been ineptly handled and almost willfully ignored, with noone taking responsibility.
Kingfisher’s depends on FDI
revival
Kingfisher has deliberately downsized over the last six months to conserve cash and has declined to become India’s smallest domestic airline by market share.
CAPA estimates that Kingfisher has a funding requirement of close to USD1 billion, of which US$ 500-600 million is needed immediately and a further US$ 300-400 million in the next fiscal.
Expectations raised, dashed and then delayed
In January 2012, the Ministry of Civil Aviation gave its strongest support to date for a proposal to permit foreign airline investment of up to 49 per cent. There remains a slim chance that it may be approved shortly after the close of the current parliamentary session at the end of May 2012, but publicly raising and then dashing expectations of an imminent change in regulations is a poor way to play the industry.
However, if the restriction is lifted, SpiceJet, GoAir and Kingfisher are the most likely candidates to seek foreign airline investors with SpiceJet, arguably, the most attractive of the three. The longer that approval is delayed, the more damaging it will be for Kingfisher. CAPA expects that the investors most seriously considering opportunities in India include the Gulf carriers such as Emirates, Etihad, Qatar Airways, although others such as International Airline Group is also believed to be actively watching the market. Removal of the restriction on foreign airlines could in fact open up a strategic partnership opportunity for Air India should the government wish to pursue such an approach.
Jet to order for up to 100 narrow-body aircraft
Jet Airways has been the main beneficiary of the negative situation at Air India and Kingfisher. Despite the carrier’s own weakness, it may decide to take advantage of the situation to expand both domestic and international as it had done in 1996 when a number of its competitors had closed down. CAPA expects Jet Airways could place a large narrow body order for over 100 aircraft in FY12/13 to meet both replacement and growth requirements. The airline is understood to be actively evaluating the A320neos and it is also likely to lease up to 10 A330s to support the expansion of its European route network.