The Centre for Asia Pacific Aviation India (CAPA India) said in its latest report released on Tuesday said that the Indian airlines industry is heading towards consolidation and it could result in a 2-3 airline system in the near to medium term.
CAPA: Losses To Deepen
CAPA India pointed out to the large losses incurred by companies in the aviation industry since March 2020 on account of COVID-19 and estimated the losses to further deepen in FY22 as demand recovery remains uncertain and international traffic will take time to come back to normal.
IndiGo, SpiceJet, Air India, AirAsia India, Vistara and GoAir are the six major airlines in India at present. CAPA India said that following the privatisation of Air India, the airline sector is likely to be dominated by two major players, with a combined domestic market share of around 75-80 percent.
The acquisition of Mumbai International Airport Ltd and Navi Mumbai International Airport Ltd by Adani Airports, may result in a two-horse race emerging in the private airport sector, it said.
“Following the privatisation of Air India, the airline sector is likely to be dominated by two major players, with a combined domestic market share of around 75-80 percent,” the aviation research and advisory firm said.
Key Takeaways From CAPA India Report
- FY2022 likely to be another year of large losses for the entire industry, particularly airlines
- Long haul air traffic expected to take some time to get on track
- International Traffic Recovery projected at 40%
- Domestic air traffic in FY2022 is expected to reach 70-80 percent of FY2020 levels
CAPA India observed that domestic air traffic in FY2022 is expected to reach 70-80 percent of FY2020 levels. “International traffic is only expected to recover to 35-40 percent of FY2020 levels. In the absence of a full recovery in higher-yielding segments such as corporate travel, airlines cannot be profitable,” it said.
It added that airport operators are also expected to increase charges in light of the impact of the pandemic on their financials. “They are likely to see continued weakness in non-aero revenue in FY2022,” CAPA India said.
As a result of weak revenue stream, CAPA India predicted that private airlines are likely to seek nearly $1 billion in debt funding and raising debt from state-owned banks may be the only option due to ‘visible’ reluctance amongst financial institutions.
In a scenario where airlines are not able to attract ‘very significant’ recapitalisation, one or more airlines may head to the National Company Law Tribunal, CAPA India said.
However, among all airlines, IndiGo is expected to emerge significantly stronger than the competition from the COVID-induced weakness, largely due to its “very strong balance sheet.”
As far as government regulations are concerned, CAPA India foresees the cap on air fares for domestic travel to continue at least for the first half of 2021 and expects international flights to continue under the air bubble arrangements for the foreseeable future.
CAPA also said that aviation regulator Directorate General of Civil Aviation (DGCA) and Bureau of Civil Aviation Security will need to be reinvented as professional, independent institutions, to be able to serve the aviation industry of today, which includes generating funding directly from industry operators and consumers.
“The need to modernise these agencies can no longer be ignored as the entire industry will soon be market-driven. Hiving off and corporatising the air navigation services division of the Airports Authority of India (AAI), in line with global best practice, is another overdue reform that should now be pursued. The AAI requires a new long-term business model given that the largest airports will have been privatised,” CAPA said in its report.
According to CAPA, there has been very limited discretionary travel demand that could be stimulated through lower fares. Though some carriers opposed pricing restrictions, CAPA expects no major push to change the regulations.