The Tata group won the bid for Air India in 2021 and took control of the airline in January 2022. It will soon be two years since the control moved to the Tatas. The airline has placed a large order, made changes to its offering, launched new routes, and operationalised its grounded planes as visible signs. There definitely is a lot which is being done but not visible to outsiders. Amidst this, the first of the planes from the new mega order started arriving this year.
Under the government, the airline remained underinvested. It was two-pronged, the hardware quality suffered for the mainline airline and the lack of planes became a problem for Air India Express, the profitable low-cost arm. The MAX series of Boeing has also experienced turbulent times with a long grounding post the two deadly crashes. Boeing kept producing the MAX, and that meant it had a large inventory. With airlines like Jet Airways going bust, SpiceJet not in a position to take planes and Chinese carriers not inducting MAX meant that Boeing had a large inventory, referred to as white tails.
The white tails are often available cheaper and certainly available faster, especially during times of supply chain issues the world over. One downside at times though is the lack of money that an airline can make from sale and leaseback transactions.
As the first of the aircraft started commercial operations and more got operational over time, a look at the network, which is in operation and announced, shows that there is a pattern. Most of the deployment is such that it breaks the monopoly of IndiGo.
The monopoly breaker
Air India Express deployed the MAX 8 on Bengaluru-Mangalore, Bengaluru-Kannur, Bengaluru-Trivandrum, Bengaluru-Calicut and Delhi-Gwalior routes. There were all monopoly routes of IndiGo, where Air India Express has started operations or announced operations. Not just domestic, the airline is also launching flights to Dammam from Hyderabad and Mumbai. Hyderabad-Dammam is currently an IndiGo monopoly.
Not just a monopoly breaker, it is possibly also working towards being a monopoly creator with flights to Gwalior from Hyderabad and Amritsar from Hyderabad. Additionally, it is going an eye for an eye at Ayodhya, having announced flights to Ayodhya from Delhi immediately after IndiGo announced the launch of its Ayodhya service.
Air India Express is playing it safe in breaking monopolies. The destinations are already part of its network, barring Gwalior and Ayodhya, which means the incremental flights are relatively cheaper to operate and a sales network is already present at both origin and destination.
The flight sectors are small leading to the impact being lesser as compared to longer sectors where the financial hit is very high if flights don’t do well or competition drops prices drastically.
Will IndiGo fight back?
For an airline which operates over 2,000 flights a day, IndiGo has had a razor-sharp focus on competition and not just the big ones but also startups. It is a given that IndiGo will strike back, with lower fares and more capacity. However, currently IndiGo has its own challenge. The airline will see anywhere between 30 and 40 aircraft being grounded starting January 2024 which is in addition to over 40 already grounded due to issues with Pratt & Whitney engines. The majority of its A320neo family fleet is currently powered by Pratt & Whitney GTF engines. IndiGo is taking in more wet and dry leases but will it have enough ammo for a fight back or would these be used more for ensuring business as usual?
In the past, IndiGo used every trick it had to push AirAsia India out of markets and some of the southern routes had seen Akasa Air pull out of routes dominated by IndiGo. However, IndiGo has rarely faced competition which is scaling up as fast as Air India Express is right now.
Re-configuration woes to remain
The white tails and supply chain constraint meant Air India Express received planes which were destined for Shanghai Airlines, Okay Airlines, China Eastern Airlines or Air China – all Chinese carriers. It also means that it has the product which was selected by the respective carriers and in most cases, comes with dual class, much like how Akasa Air got its aircraft. With a lower number of seats than the LCC configuration and a small business class cabin, Air India Express is selling the seats up front as a separate service. However, it does not help reduce CASK (cost of available seat kilometre). In an environment where Air India Express’ costs are higher than IndiGo, this further impacts the costing. Add to that the reconfiguration which will have to be done sometime in future, and the going is not as smooth as one would have imagined.
Yet given the choice of adding capacity vs the long-term costs, it may well be economical to add capacity and get going in the market rather than to wait for supply chain issues to normalise. The monopoly routes typically have higher fares and if Air India Express decides to focus on breaking monopolies, the consumer is the winner.
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Published: 25 Dec 2023, 04:05 PM IST