Under Modi 3.0, India's aviation industry is expected to grow, but "emerging duopoly" may harm customers

sector experts caution that the sector is likely to concentrate into only 2-3 player markets, hurting competition, with Go First predicted to stay afloat and SpiceJet suffering.

Delhi, New: Experts predict that the aviation industry would expand more quickly if the Narendra Modi-led government returns to power. The government's emphasis on the industry and its intentions to position India as a center for the manufacture of aircraft globally, together with the addition of big aircraft orders and growing airport infrastructure, will propel this expansion.

Analysts predict that demand will continue to be strong, but the industry is likely to consolidate into a two- to three-player market due to Go First's expected financial stability and SpiceJet's financial difficulties. This could reduce consumer interest and industry competition.

According to JM Financial, the government's emphasis will lead to an increase in the aviation sector.

"The Amrit Kaal Civil Aviation Master Plan (BJP Manifesto) and a strong focus on turning India into a global hub for aviation manufacturing mean that the BJP's return to power could accelerate the growth of the under-penetrated Indian aviation industry," the letter this week said.

In the last ten years, or the first two terms of the Narendra Modi-led administration, the number of airports has quadrupled from 74 to 149, according to the investment banking business, and is predicted to reach 220 in the next five years. It also said that the aviation industry will benefit from the substantial orders for new aircraft placed by Indian carriers, which are anticipated to be delivered in the coming years.

It said that "Indian airlines' order of 1,124 aircraft in FY24 and a capital expenditure plan of Rs 1 lakh crore could accelerate the growth of the Indian aviation industry."

Separately, Nuvama Institutional Equities said that domestic air passenger traffic is predicted to increase by 8–13 percent in the current fiscal year, hitting 150–155 million and exceeding pre-Covid levels, indicating that the Indian aviation sector is poised for expansion.

It said that this was in spite of challenges such plane crashes, problems with the supply chain, and the suspension of SpiceJet and Go First's activities.

robust increase in air travel

The number of passengers who traveled by air increased by 8% annually to reach 15 million in April 2024, driven mostly by robust demand for domestic travel combined with stable demand for travel abroad. The uptick in overseas travel was the main driver of the 8 percent rise in planned flights to 90,000 in June, however aircraft groundings also played a factor in this surge.

International airlines are considering growing their footprint in India due to the rising demand for travel there. Le Hong Ha, President and CEO of Vietnam Airlines, for example, said in an interview with CNBC TV-18 that the airline is hoping to increase its footprint in the Indian market because of the enormous potential there.

Similarly, reports indicated that Hungary-based Wizz Air and Malaysia Airlines were considering growing into the Indian market.

Rising duopoly may be detrimental to consumers

Nuvama Institutional Equities anticipates a "duopoly-like industry structure" in the face of the high demand, which might have an immediate effect on consumer interest and competitiveness.

"Go First's resumption of operations remains unclear, with a significant portion of its fleet grounded due to engine shortages," the company said in a note. "Difficulties remain, including financial strains and delays in engine deliveries, despite plans for an IPO and efforts to raise funds."

Go First's market share is still dropping, Nuvama said, and operational challenges are impeding the company's resurgence.

Furthermore, the Delhi High Court ordered the DGCA to de-register all 54 of the airline's leased aircraft later that month, further diminishing Go First's prospects of survival even after the NCLT tribunal granted it a third extension of 60 days to finish its corporate insolvency resolution process in early April.

The actual operational fleet is estimated to be considerably lower, increasing by just 12 aircraft to 588 due to an increase in grounded aircraft, even though the total aircraft fleet in India at the end of FY24 is projected to be 790 aircraft, 100 more than in the previous year, was primarily responsible by Air India and Indigo.

According to Nuvama, "the number of grounded aircraft is anticipated to rise from the current 165 to 200, mainly as a result of supply chain problems, a P&W engine problem, operational weakness at SpiceJet (SJ), and the suspension of Go First and SJ." To make up for the capacity shortage, Indigo and SJ have resorted to bringing in aircraft on a wet lease. By March 24th, up to 30 wet-leased aircraft should be in service.

In a wet lease, the lessor provides personnel and maintenance in addition to the aircraft.

Take the Lead & SpiceJet's issues will help market leaders

According to Nuvama, the industry will only have two major competitors with a combined domestic market share of over 75% as SpiceJet's operating capacity is predicted to decline by 70% by March 2024 and the whole fleet of Go First—54 aircraft—is expected to remain grounded.

"As small players like Go First and SJ (SpiceJet) lose ground, IndiGo is expected to benefit from gains in market share across categories," Nuvama said. "Consolidation to two or three players could have a significant short-term impact on consumer interest and competition in the industry."

According to JM Financial, Air India may become more competitive as a result of the NCLT-approved merger of Vistara and Air India, which would become Air India the country's biggest international airline and second-largest domestic carrier.

Air India stated this week that it would roll out the three-class configuration over the course of the next year to its whole fleet of full service narrowbody aircraft (A320neo). As a result, on both local and short-haul international flights, the airline will have business class, premium economy class, and economy class seats.

A anticipated duopolistic industry structure with Indigo and Air India at the helm "shall spur pricing discipline, thereby driving yields up over the long term," according to Nuvama.

Passenger growth would be driven by healthy demand and aggressive capacity expansion, it said.

Nevertheless, there will likely be some respite for airlines soon. Aviation turbine fuel (ATF) costs are predicted by JM Financial to ease, which might support the industry's expansion.

"ATF, which accounts for 45–50 percent of operational costs, had a price reduction in the fourth quarter after seeing a spike in the second, third, and third quarters. The price was further lowered by Rs 7,000 on June 24," the statement said. Airlines may see reduced expenses and increased profitability as a result.