Indian LCC IndiGo plans ambitious expansion after hiatus
- Aircraft deliveries will be for replacement rather than short-term growth.
- IndiGo ultimately aims to increase international services to 40% of its operations.
- Domestic demand recovered quickly and capacity limits were removed.
- The privatization of Air India will be a net positive for the airline industry, says Dutta.
Delivery flow will drive fleet growth after replacement of older A320s
The LCC has more than 550 Airbus A320neo and A321neo on order and has no plans to slow down the delivery schedule.
However, the focus has shifted from growth to fleet replacement. Although IndiGo will continue to take aircraft deliveries from its large order book, it plans to keep its fleet total relatively stable in the near term.
IndiGo is unlikely to return to significant levels of fleet growth until late 2023 or early 2024, Dutta said. The fleet total could increase slightly, but in general the airline will “walk on water” for a while, he said.
IndiGo had 100 older A320s it wanted to replace, and that process is now halfway there, Dutta said. When this replacement process is complete, there will still be hundreds of orders left for growth. Mr Dutta stressed that the airline has enough schedule plans to accommodate the additional planes and that it remains “anxious to implement those plans”.
Long-term growth will be more internationally oriented
There will also be little network growth for the next 18 months. When network expansion resumes, international services will grow faster than domestic services, Dutta said.
International flights made up about 25% of IndiGo’s operations before the pandemic hit, after increasing 15% a few years earlier. Mr. Dutta estimates that the international share of operations will be around 40% within four years. The airline remains “very optimistic about international opportunities,” Dutta said.
The airline has many attractive markets within a seven-hour flight radius of its four main Indian hubs. Mr Dutta said this distribution circle extended to Moscow, Barcelona, Nairobi, Manila, Beijing and Shanghai. Many destinations like this are currently served by stopover options from India, while IndiGo would carry them directly.
Among IndiGo’s Airbus orders are 70 A321XLRs, which will allow it to pursue more distant destinations than its current fleet can reach.
Demand recovered quickly – at least, in the domestic market
IndiGo has increased its national capacity to around 85% of pre-pandemic levels, Dutta said. This corresponded to the capacity limits imposed on all local airlines by the Indian government.
However, on October 12, 2021, the government removed the limits completely.
Domestic demand has rebounded rapidly since the second wave of COVID-19 infections calmed down in India earlier in 2021. Demand has essentially followed a bell-shaped curve, dropping sharply from April-2021 to May -2021, but increasing just as rapidly thereafter. There has been a much larger delay in responding to demand after the first wave of COVID-19 in 2020, Dutta said.
The airline’s international operations have been, as might be expected, slower to recover, and are currently at around 35% to 40% of its 2019 capacity. A growing number of bilateral travel corridors international were established by the Indian government. Mr Dutta said IndiGo’s next effort is to restore access to the Saudi and Thai markets.
Air India privatization is good for market dynamics
One of the most important developments in the Indian market is the privatization of Air India and the recent selection by the government of the Tata group as the buyer of the national carrier. Mr. Dutta said the sale of Air India is “a very welcome move that should have happened a long time ago”.
The privatization of Air India should make it a more “economically responsible” competitor, Dutta said. He noted that having Air India under government ownership prevents healthy competition.
The Tata group is also the majority shareholder of AirAsia India and Vistara, the addition of Air India to its portfolio will therefore give it a strong position in the market.
“We see them as a formidable force, but [Air India privatisation] is good for the industry and for the nation, ”said Mr. Dutta.
Despite IndiGo’s ambitions to expand internationally, it will not compete much with Air India on such routes. Mr. Dutta noted that Air India targets long-haul routes to markets like London and the United States with wide-body aircraft. And the two airlines will target different market segments, with Air India offering full services such as business class and lounges.
New entrant Akasa won’t worry IndiGo for a while
A new competitor is emerging in the Indian market, with start-up LCC Akasa to be launched in 2022. It is supported by veteran former senior executives from other Indian airlines, including former IndiGo chairman Aditya Ghosh.
However, Mr Dutta believes Akasa will be much less of a competitive threat and that IndiGo has “good defenses” against new LCC entrants.
Akasa will likely remain relatively small for at least 2-3 years, and “it would be difficult for anyone to cost less than us” in this market, Dutta said. IndiGo also has a very extensive network in all cities of India.
IndiGo is well positioned to become even stronger in the Indian market
IndiGo is a real juggernaut in the Indian airline industry, and that will certainly not change in the post-pandemic period. Its dominance may make life difficult for some of the struggling little Indian LCCs.
However, the growing footprint of the Tata Group in the airline industry could make it a more effective competitor, especially since it could potentially cover a larger part of the market. Even so, it’s likely that IndiGo poses more of a threat to Tata’s plans than the other way around.
One potential problem for IndiGo – and other Indian airlines – is the likely return of overcapacity in the domestic market. It was a problem before 2020, and the pandemic period will likely only be a temporary respite.
National capacity limits have been removed and it appears that by 2022 there will actually be more airlines in the Indian market than there were before the COVID-19 crisis. This could make consolidation even more urgent for the industry.