Six things to watch out in Indian aviation in 2020

After a failed attempt before the general election, the government has been silently working and propping up Air India for its much delayed and long-awaited privatisation. The new year will be dominated by efforts from the government to sell the airline. From its earlier stance of keeping some equity with itself to current stand of selling the airline lock, stock and barrel, the government has made amends to ensure that the airline remains attractive. World over, many airlines are up for sale and Air India is one amongst many, operating in an environment which has seen a few instances of collapse in the last decade.

The government has already worked out ways to hive off some debt off the books of Air India. Yet questions remain about how the entity will be sold — in parts or as a whole entity — and what happens if there is no buyer to buy the complete entity and it is sold off in parts with a few not sold at all.

The airlines from the TATA stable made some news last year. TATA Sons gained control of AirAsia India and Vistara doubled losses last year. The year 2020 is crucial for both and possibly one more, if the Tata group decides to bid for Air India.

AirAsia India has not got permission to fly international while Vistara – which started later than AirAsia India — started flying abroad in 2019. Vistara will induct B787-9 Dreamliner aircraft, giving the airline the capability to fly non-stop to Australia and the US. The airline, which has been adding interlines and codeshares in the last couple of quarters, is all geared up for international growth, but widebody operations typically lead to increased burn in cash and takes more time to stabilise. While competition in India is cutthroat and intense, it is restricted to a few players. With international, though the competition remains cutthroat and intense, the game changes completely.

That is why if Tata decides to bid for Air India should be keenly watched. The group had expressed its intentions to bid for Jet Airways, but that never materialised. With Air India, an airline which was nationalized after being started by JRD Tata, the thoughts could be different.

The Regional Connectivity Scheme (RCS) –UDAN (Ude Desh ka Aam Nagrik) completes three years of operations. UDAN 1.0, which released in 2016 and was operationalised in 2017, had a three-year exclusivity clause. Airlines that bid and won the route will see this exclusivity clause end in 2020. The scheme has already been in the news for the wrong reason with less than 35 percent routes being operationalised over the last three years. While most of the routes were won by Air Deccan, which has limited operations currently, and Air Odisha, which is not in operation any more, Air India’s Regional (Alliance Air) and Spicejet have also won and operate routes under UDAN-I.

Depending on how the competition reacts to the end of exclusivity, the future of RCS-UDAN could take a new turn.

IndiGo placed a mammoth order in 2019. It probably is time for others – Vistara and GoAir — to place an order for additional aircraft. The slots at Airbus are booked for a long period and for current fleet replacement and incremental orders, the time is now.

The previous year saw engine issues with the A320neo family powered by Prat & Whitney leading to the regulator issuing guidelines to IndiGo, not approving ETOPS (certification for twin-engine aircraft with an eye on emergency landing)  and ordering engine replacements. Three years after its entry in service in India, the PW-powered A320neo family is yet to see stabilised operations.

The global grounding of the B737 MAX8 has led to Spicejet having to rely on older aircraft and halt its expansion plans with the MAX. When will the MAX be back in service is anybody’s guess. Will another airline order widebody?

Airlines in India have been locked in a bitter fare war in recent years. While costs have risen, fares haven’t. The fare war is not designed for market share. Instead, it is driven by ways to push passengers to fly.

While airlines have focused on lowering CASK (cost per available seat kilometre), the RASK (revenue per available seat kilometer) hasn’t seen the kind of upswing that would be needed to cover up the losses that have been incurring. IndiGo also reported losses in the previous year, though not yet at yearly levels.

The pricing war is likely to continue, despite the aviation minister’s warning. The double-digit growth is driven by cheap fares. When fares rise,  growth suffers and for the kind of capacity that would be inducted if the Pratt & Whitney engine issue is resolved and the B737 MAX returns to service, pricing wars will continue as airlines try to fill up planes.

After the first phase of airport privatization in the 2000s, the next phase started last year. However, like most schemes, this too was marred by controversy. The Adani group, which won the tender to manage six Indian airports, is yet to take over management and more airports are up for privatisation in the coming year. Quite a few regulatory challenges would come up. From a Duopoly of GMR and GVK, Indian already has an oligopoly of GMR, GVK, Adani and Zurich Airports. But will the government restrict number of airports per player or keep it unshackled? This condition would dictate the broad direction for years to come.