BizReview Ep1: Aviation in India

Hello! On the pilot of BizKrispies, today we dive into aviation in India - how it started, what conspired and what the status quo is. If you’re interested in aviation or business, this should be a fun read (est. reading time: 9 min 23 sec) So fasten your seatbelts as we prepare for takeoff. 

Aviation globally is drastically different from what it is in India, in terms of sophistication and development, pricing, experience and dynamics - while air travel is pretty common across the globe that seems to not be the case in India with flights being relatively uncommon. Despite the aerial route being relatively novel, recent articles suggest that no nation in the world is buying more planes than India - top airlines (of the likes of Air India Express and Indigo) have placed orders for nearly a thousand jets this year, committing to a spending spree of tens of billions of dollars. India is also home to the preparing-to-be second busiest airport in the world, the Indira Gandhi International Airport which would be ready for hosting a modest 109 million passengers this year as well as the world’s third largest airline carrier by m-cap, InterGlobe Aviation (or Indigo) boasting of a market cap of approximately $20 bn (as of May 16, 2024.) But where’d all this start? 

THE HISTORY

While modern civil aviation in India dates back to February 1911, the most significant first step occurred on 15 October 1932 when a 28 year-old J.R.D Tata flew a consignment of mail from Karachi to Juhu Airport. His airline later came to be known as the iconic ‘Air India’ - our flag carrier. 

The Air Corporations Act passed by the Indian Parliament in March 1953 nationalised the airline industry, and the eight domestic airlines operating independently at that time were merged into two government-owned entities - Indian Airlines, focussing on domestic services and Air India, focussing on international routes. The International Airports Authority of India (IAAI) was constituted in 1972 while the National Airports Authority was constituted in 1986. These bodies were merged in April 1995 by the passing of the Airports Authority of India Act, 1994. Today, the Airports Authority of India exists as a statutory body under the ministry of Civil Aviation responsible for creating, upgrading, managing and maintaining civil aviation infrastructure in India. 

Following the decentralisation of the aviation sector in 1991, East-West airlines emerged as the first national-level private airline to operate in the country. The dynamics became complicated starting 2004 when several low cost carriers entered the market, the most prominent of them being Paramount Airways, Air Deccan, Air Sahara, Kingfisher Airlines, SpiceJet and GoAir. However, the industry soon met with problems relating to high personnel costs, rising fuel prices, increased operational complexities, economic slowdown and lack of business, consequently leading to a ton of mergers, acquisitions and exits. Air Sahara was bought by Jet Airways and Air Deccan was acquired by Kingfisher in 2007; Paramount discontinued operations in 2010 and Kingfisher saw its grave being dug in 2012. 

The Tatas emerged as a pioneer in this industry with AirAsia being launched in 2014 as a joint merger between AirAsia and Tata Sons and Vistara being launched as a joint venture between Singapore Airlines and Tata Sons. Following a privatisation push by the then government, Tata Group also regained control over the Maharaja of Air India after nearly 70 years in January 2022. 

THE PRESENT

Today, India is the third largest aviation market in the world. And while it is estimated that only 3% of the population uses civil aviation infrastructure annually, that from a population of 1.4 billion is still a healthy number of 42 million. The country today has 32 international airports, 9 limited airports and other domestic, private and civil enclaves. Of the 39 airline carriers in India, ALL the largest airline carriers namely Indigo, AirAsia, SpiceJet, Vistara, Air India, and GoAir WERE NOT PROFITABLE in the fiscal year ending 31st March 2022. What forms the reasoning behind the unfavourable financial position of these companies? 

Air travel remains beyond the financial reach of most Indians barring a handful. The surge in investments for the current year however, has pride in place in India’s case for a greater standing on the world stage. As we rise to the heights of being one of the largest economies, we’re now scrambling to meet the expanding ambitions of our ascending middle class.

Kapil Kaul, CEO of CAPA India, an advisory firm focused on aviation, calls “the next two to three years critical for achieving the quality of growth that India desires and deserves.” Growth has so far been profitless. Now Indian aviation must prove it can make money.

The effects of the spending spree should redound across India’s economy. Cargo comes with passenger traffic, and foreign investment tends to follow closely behind, Kaul Said. (Source: ET)

By passengers carried, the market share of airline carriers in FY23 were as follows: 

• Indigo: 54.7% 

• Vistara: 10.4%

• Air India: 9.3%

• SpiceJet: 8.4%

• GoAir: 8.4%

• AirAsia: 7%

• Akasa Air: 1.1%

• Others: 0.7%

Let’s see how the markets have been reacting to the sector this year. 

THE HISTORY OF MAJOR PLAYERS

Air India: 

Having started in 1932 with J.R.D Tata’s vision to conquer the skies, Air India, the flag carrier was nationalised in 1953 and remained government operated till October 2021 when a landmark judgement transferred its ownership back to Tata Sons. “Maharaja is back! Tata Group gets handover of Air India” read the headlines as Talace Private Limited, a subsidiary of the Tata Group’s holding company regained ownership of Air India at a cost of 18000 crores. 

Widely known as the Maharaja of the Indian skies owing to its popular mascot, Bobby Kooka’s maharaja, the Tata Group has spent tens of billions in reforming the company in recent years spending on 470 new aircrafts, cabin modernisation, a brand refresh and customer service changes. The Tatas plan to acquire 470 new aircrafts at a cost of $70 billion. The turnaround, led by CEO Campbell Wilson has completed its first phase with about $200 mn invested to update its IT Compliance and services. 

Recent news suggests that the end of this year may see a landmark merger - that of Air India and Vistara - aiming to become the largest airline carrier in India. The merger currently awaits foreign direct investment, international approvals including that of Singapore Airlines. The staff transition is said to begin from June. Whether the maharaja will return to rule the skies, only time will tell. 

Kingfisher: 

From the maharaja, we next dive into “The king of good times.” Founded in 2003, Kingfisher Airlines was owned by United Breweries Group and was the dream of notorious liquor baron Vijay Mallya. The kingfisher first spread its wings in 2005 with a small fleet of four Airbus A320-200s and operated primarily between Delhi (DEL) and Mumbai (BOM), which was the 7th busiest route in the world as at 2022.) The luxury experience provided by Kingfisher made it expensive for the still developing Indian market and is widely credited as the first reason for its failure. At its peak Kingfisher had 69 aircrafts and operated along several routes spanning many destinations. 

Despite having the second largest market share in the country, Kingfisher never turned profit - debt grew while CEO Vijay Mallya and team did nothing substantial to overturn the situation. The new and comfortable planes, gourmet food, in-flight entertainment and state of the art lounges couldn’t save the airline. The 2007 acquisition of the failing Air Deccan to expand its domestic network is considered to be the final nail in the coffin. The 2008 financial crisis brought along further difficulty with Mallya having to pump in money to keep the carrier afloat. Despite cutting down the fleet to 28 aircrafts, and trying to find a rescue investor Kingfisher failed to survive. On 20th October 2012, its licence was suspended by the Directorate General of Civil Aviation (DGCA). Mallya’s downfall and the forgive-none nature of the industry is often why civil aviation is called the billionaire’s graveyard. 

Indigo: 

Indigo, also known as InterGlobe Aviation Pvt Ltd is the face of Indian Aviation globally. With 100 million passengers carried in 2023, it is the largest airline carrier in Asia and one of the largest carriers in the world with a 60.5% domestic market share in March 2024. IndiGo was founded in 2006 by Rahul Bhatia of InterGlobe Enterprises and Rakesh Gangwal, a United States-based expatriate Indian. IndiGo placed a firm order for 100 Airbus A320-200 aircraft in June 2005 with plans to begin operations in mid-2006. It commenced operations on 4 August 2006 with a service from New Delhi to Imphal via Guwahati. In December 2010, IndiGo replaced state-run carrier Air India as the third largest airline in India, behind Kingfisher Airlines and Jet Airways with a passenger market share of 17.3%. From the quarter ending March 2012 Indigo became the most profitable airline in the country and on 17th August 2012, it overtook Jet Airways to become the largest airline in the country six years after it commenced operations. 

Indigo’s success can be credited to its former president Aditya Ghosh, a lawyer by education. Aditya infused operational excellence in the company’s DNA and introduced the “Sales and Leaseback model” wherein Indigo ordered aircrafts from Boeing or Airbus in bulk, getting a bargaining power. They then sold these aircrafts to leasing companies at slightly higher prices (capitalising on the bargaining power from their bulk orders), gaining out of the transaction and leased-back aircrafts from these agencies. This was considered a masterstroke in the civil aviation space and several airlines followed suit. 

On 19th June 2023, Indigo and Airbus announced that Indigo placed an order for 500 aircrafts of the A320 family, setting the record for the single largest order in the history of civil aviation. With over 300 aircrafts currently operating 1800 flights daily, Indigo is one of the fastest growing low cost carriers globally, and at this pace only sky's the limit for the blue livery. 

Akasa Air: 

Widely considered as the biggest revolution in Indian aviation since Indigo, Akasa started at a time when the entire industry was suffering amid a global economic slowdown owing to the covid pandemic. Backed by the legendary late Rakesh Jhunjhunwala, Akasa was founded by Vinay Dube (former CEO of Jet Airways and GoFirst) and Aditya Ghosh (former Indigo president). The Airline began commercial operation in August 2022 and CEO Dube stated that the airline aims to have a fleet of 72 airlines within 5 years of operation. Rakesh Jhunjhunwala invested $35m for a 40% stake in the airline which later increased to 46%. As of May 2024, Akasa Air flies a total of 21 destinations including 20 domestic destinations and 1 international destination. Already having garnered a 4% market share, the orange livery aims to catch up soon to the big guns in the aviation space.

References: 

• Economic Times

• Mint

• StartupTalky

• Reuters

• India TV

• Simple Flying

• Wikipedia

• Airbus