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Large Indian fleet orders to drive network expansion

Airline Leader

The order book for India's airlines is likely to reach 1123 aircraft following expected orders for 100 aircraft each by Jet Airways and Vistara. This is the third largest order book in the world after the USA and China. And its projected ratio of 2.2:1 aircraft on order for every aircraft in service would be the highest of any major aviation market.

Summary
  • India's order book for aircraft is expected to reach 1123, making it the third largest in the world after the USA and China.
  • The majority of the orders are for narrowbody aircraft, indicating a focus on domestic and short-haul international routes.
  • Congestion at major airports in India is becoming a significant issue, with many airports expected to exceed their design capacities within the next decade.
  • The construction of second airports in key cities, such as Mumbai and Delhi, is necessary to alleviate congestion and accommodate future growth.
  • Indian carriers have limited international connectivity, with most international passengers traveling on foreign carriers.
  • IndiGo, the leading domestic carrier, plans to diversify its network onto regional and long-haul routes, potentially launching long-haul low-cost services.

The order book will be dominated by narrowbodies which account for 86% of the total, so airline network plans remain focused on domestic and short haul international routes. Widebodies and regional aircraft account for just 6% and 8% of the total, and this is even after orders in recent weeks for 50 ATR-72s by IndiGo and 25 Bombardier Q400s by SpiceJet.
But with the 40 largest airports in India likely to be saturated within the next decade, securing slots for key domestic routes will become more challenging. CAPA estimates that most of the 40 largest airports in the country will have exceeded their design capacities within the next decade, and for several of the larger metro airports it could be much sooner.
Each of the metro cities will require a second airport by 2030, and Delhi and Mumbai may require a third. Mumbai and Chennai are already close to saturation and the prospect of these major airports being closed to additional air capacity has significant negative economic repercussions.
Air India and Jet Airways have started to deploy widebodies on some domestic routes from Mumbai in order to maximise the capacity of scarce runway slots. The airport has been actively discouraging operations by regional aircraft and has a curfew on general aviation movements during peak hours.
Although the PPP concession to develop a second airport in Mumbai at Navi Mumbai was finally awarded in Feb-2017 - after many years of delays - the official go-ahead is yet to be received by the successful bidder, Mumbai International Airport Limited. With significant earthworks to be performed at the site before construction can commence, it is highly unlikely that the second airport will commence operations until FY2023 at the earliest, by which time congestion at the existing airport will have become far more severe.
The impact of congestion can be seen in the recent traffic growth rate at Mumbai, which is by far the lowest amongst the six metros, reflecting the shortage of available slots. The economic loss to the city and the region is massive as a result, causing the loss of thousands of jobs and fundamentally undermining Mumbai's potential as a major regional aviation hub. These effects are little short of tragic - and completely avoidable.

Short haul destinations served by Indian carriers on a nonstop basis*

The government will need to fast-track decisions on the construction of second airports in key cities, or at least notify land so that a suitable sites are available when required. In Chennai, the site for a second airport has not yet been finalised, which means that operations are still several years away. Similarly, Pune is another airport that is already congested, and where a solution in the form of new airports is yet to be determined.
In the case of Delhi, the decision to approve the development of the second airport serving the National Capital Region, at Jewar, is a welcome development. At projected growth rates the current airport could saturate by FY2023, and even sweating the asset to handle more passengers may only accommodate a couple of years additional growth.
International growth may be less constrained as India's geographic location means that back-of-the-clock services are common, a time when there is greater availability of slots. There are currently five Indian airlines that operate international routes - Air India, Air India Express, IndiGo, Jet Airways and SpiceJet. Over the next 18 months they could be joined by three more, namely AirAsia India, GoAir and Vistara.

Long haul destinations served by Indian carriers on a nonstop basis*

AirAsia India and Vistara have been keen to operate international routes since they launched, but must first comply with the regulatory requirement of operating 20 aircraft on domestic routes. GoAir already meets this threshold, and has expressed interest in overseas markets, but is yet to take that step.
The five Indian airlines operating international routes serve a combined total of just 40 destinations on a nonstop basis. For an economy the size of India, this represents a relatively small footprint compared for example with the networks operated by the Gulf carriers. As a result, the majority of the close to 60 million annual international passengers to/from India travel on foreign carriers, with around 40% connecting via offshore hubs.
Destinations in the Gulf are well served, but Indian carriers have only limited routes to Central and Southeast Asia, with several major markets unconnected. For example, no Indian airlines operate to Malaysia, despite the fact that more than 630,000 Indian tourists visited the country in 2016.
In terms of long haul routes, only Air India and Jet Airways operate widebody equipment, and Air India is the only one operating to 15 of the 18 long haul destinations. Africa and Latin America remain white spots in the networks of Indian carriers. Half of the foreign destinations are served by multiple Indian carriers, with all five airlines operating to Dubai and Muscat. Half of the foreign destinations are served by multiple Indian carriers, with all five airlines operating to Dubai and Muscat.

Airport Capacity utilisation, FY2017

AIRPORT MAXIMUM DESIGN CAPACITY
AT CURRENT SITE (MILLION)*
PASSENGER CAPACITY
UTILISATION IN FY2017
EXPECTED DATE OF
SATURATION#
Delhi 100.0 58% FY2023
Mumbai 48.0 94% FY2018
Bengaluru 55.0 42% FY2026
Hyderabad 40.0 38% FY2026
Chennai 18.0 102% FY2018
Kolkata 24.0 66% FY2023

Air India has been rapidly expanding its international footprint. Over the last couple of years it has launched or announced a number of new stations including Copenhagen, Madrid, San Francisco, Stockholm, Vienna and Washington DC, with cities such as Nairobi, Houston and Los Angeles on the radar.
Meanwhile, Jet Airways is focusing on increasing capacity to Amsterdam and Paris where it is working closely with partners Air France-KLM and Delta to provide connectivity across Europe and North America. Jet Airways has five A330s and 10 Boeing 787-900s on order, although it continues to defer deliveries. Nevertheless, a large widebody order will be necessary in the near term, both for replacement and expansion.

Network reach of Indian carriers operating non-stop international routes

AIRLINE DOMESTIC TOTAL
INTERNATIONAL
ASIA PACIFIC MIDDLE
EAST
EUROPE NORTH
AMERICA
Air India 52 35 12 10 8 5
Air India Express 15 14 2 12 - -
IndiGo 39 7 3 4 - -
Jet Airways 39 19 6 10 3 -
SpiceJet 42 7 4 3 - -

IndiGo, the leading player in the domestic market, has signalled its intention to diversify its network onto regional and long haul routes. IndiGo has the largest in service fleet in India at 135 aircraft, and the largest order book of any airline in the world at 458 aircraft. Its fleet could expand by more than aircraft during the current financial year, a net addition of almost one aircraft every eight to nine days.

Ratio of Aircraft On Order to Aircraft In Service in the 20 Largest Markets by Current Fleet

IndiGo recently surprised the market by announcing plans to diverge from its single aircraft type model and launch a regional operating division. In May-2017 the carrier announced an order for 50 ATR-72s, which is likely to be expanded further in the near term.
However, in terms of regional equipment orders in the market this simply replaces the 50 Embraer jets that were on order to Air Costa, until the airline suspended operations earlier this year due to financial difficulties. Air Costa's operating certificate was revoked in Jun-2017.

Year-on-year passenger traffic growth at metro cities in FY2017

IndiGo has stated that it sees great potential in launching long haul low cost services. Such operations could be developed organically, however the carrier has also expressed interest in bidding for Air India's international operations, following the Government of India's announcement that it plans to privatise the national carrier. Details about how the offer will be structured are not yet known, including whether the domestic and international operations will be available separately.

Foreign destinations served by more than one Indian carrier

DESTINATION NUMBER OF INDIAN AIRLINES
SERVING DESTINATION
AIRLINES
Dubai 5 Air India, Air India Express, IndiGo, Jet Airways, SpiceJet
Muscat 5 Air India, Air India Express, IndiGo, Jet Airways, SpiceJet
Abu Dhabi 4 Air India, Air India Express, IndiGo, Jet Airways
Bangkok 4 Air India, IndiGo, Jet Airways, SpiceJet
Dhaka 4 Air India, Air India Express, Jet Airways, SpiceJet
Sharjah 4 Air India, Air India Express, IndiGo, Jet Airways
Singapore 4 Air India, Air India Express, IndiGo, Jet Airways
Bahrain 3 Air India, Air India Express, Jet Airways
Colombo 3 Air India, Jet Airways, SpiceJet
Dammam 3 Air India, Air India Express, Jet Airways
Doha 3

Air India Express, IndiGo, Jet Airways

Kathmandu 3

Air India, IndiGo, Jet Airways

Kuwait 3

Air India, Air India Express, Jet Airways

Riyadh 3

Air India, Air India Express, Jet Airways

Hong Kong 2

Air India, Jet Airways

Jeddah 2

Air India, Jet Airways

Kabul 2

Air India, SpiceJet

London 2 Air India, Jet Airways
Male 2 Air India, SpiceJet
Paris 2 Air India, Jet Airways

India's underserved market demand, combined with the slew of new aircraft orders, means the industry should be set for rapid expansion and diversification. Yet it is equally clear that government prevarication over introducing new, much needed infrastructure has the potential to nip much of this growth in the bud.