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India’s airlines lost USD1.65 billion in FY2013. CAPA India Aviation Outlook 2013/14: Part 4

This is the last of a four-part series of extracts from the annual India Aviation Outlook Report for FY2013/14, to be published on 6-Jun-2013.

In this final extract we review the financial and operational performance of Indian carriers in FY2013 and look ahead at their prospects in this new financial year.

The first extract looked at the changing dynamics of the airline sector on both domestic and international routes, while the second examined the policy vacuum that persists in India and the impact this has on the viability and development of the sector. The third part addressed key issues in airport and airspace infrastructure.

To order the full 250+ page CAPA India Aviation Outlook Report FY14 click here or contact Binit Somaia on bs@centreforaviation.com

Air India Outlook: a business model beleaguered on all fronts

In this second extract from the CAPA India Aviation Outlook 2013/14 we look at the growing challenges to flag carrier Air India’s business model.

A combination of stronger Indian competitors as a result of foreign airline investment, the growth of LCCs, the opening up of the international market in the form of bilateral liberalisation and the changing nature of global alliances, will impact each of the three key areas of Air India’s operations – long-haul international, regional international and domestic – each of which we will consider in turn below.

ANA's capital-raising and international acquisition strategy raise questions for investors

Call it an unusual, even fortunate, position, but some are quietly wondering if Japan's All Nippon Airways has more cash than it has strategic plans to utilise that capital. ANA in Jul-2012 announced plans to raise as much as JPY211 billion (USD2.2 billion) of capital in a move with coincidental timing, or not: just ahead of the re-listing of rival Japan Airlines, freshly emerged from bankruptcy.

ANA said the funds would primarily support the purchase of 787 aircraft, but then ANA gave the shell shock announcement it would invest in foreign airlines. Another seeming reversal came in Dec-2012 when ANA acquired a stake in an airline – but it was the domestic operator StarFlyer.

Press reports in late Jan-2013 said ANA had been in discussions with Indian carriers following the country's foreign ownership relaxation. ANA has given cool responses to the rumour, and either way synergies from an ANA investment in an Indian carrier would be low and the challenges high.

Etihad’s potential investment in Jet Airways to be a game-changer for India

Jet Airways is expected to be the first incumbent airline to take advantage of the Sep-2012 decision by the Indian Cabinet to permit up to 49% foreign investment in Indian airlines.

Allowing foreign airline investment is a vital step in establishing a more professional and corporatised sector in India. It offers the promise not only of introducing strategic capital and expertise into the market, but also delivers a much needed confidence factor for other institutional funding.

However, a big drawback remains the weakness of India’s underlying regulatory framework and the structural challenges in Indian aviation. Until a host of typically Indian nit-picking bureaucratic and political issues are squared away, it remains a lottery investing into the country. That is a fundamental issue for any government serious about encouraging measures to generate consumer (and corporate) benefits.

United ends 2012 as world's biggest airline, Emirates third. Turkish and Lion Air the biggest movers

United Airlines, following its merger with Continental, has ended 2012 as the world's biggest airline measured by available seat kilometres for the current week, ahead of second placed Delta, whose capacity fell 0.3% year on year, according to Innovata. Fast growing Dubai-based carrier Emirates is the world's third biggest airline by this measure, and could be in second place by the end of 2013 if the past year's growth rates are maintained.

Southwest Airlines remains easily the largest LCC, while Lion Air and Jetstar have each climbed the LCC top 10, to sixth and seventh places respectively, overtaking Westjet. Atlanta Airport (just) remains the world's largest, ahead of Beijing Capital Airport, in terms of seat throughput for the week, but this ranking seems certain to reverse in 2013.

The biggest movers in the overall World Top 50 list include Turkish Airlines, which jumped seven places to rank 15th globally, while Indonesian carrier Lion Air vaulted eight places to enter the global Top 40 for the first time. Iberia and India's Jet Airways fell four and seven places in the 2012 rankings, respectively.

Global Airline Alliances collectively grew capacity at higher than the world rate, with SkyTeam expanding fastest of the three majors, although Star Alliance remains easily the largest.

Indian LCCs expanding internationally on Air India's flying rights and changing the market dynamics

Recent woes in the Indian aviation sector are providing a further boost to the international aspirations of the nation’s LCC operators. IndiGo and SpiceJet are changing the market dynamics by opening up new international routes to low-cost competition as the Ministry of Civil Aviation grants private carriers additional access to bilateral entitlements.