Air India's future market share depends on aviation sector's probabilities

Its aim for a third of the domestic market by 2027 is contingent on a host of factors, many of them outside its control

Air India’s plan to increase its domestic market share from 8.5 per cent currently to 30 per cent in the next five years is contingent on various factors — including probable merger of all Tata Group’s airlines, speed of airport infrastructure growth, load factors in forward cabins, and growth of new airline Akasa Air and revamped Jet Airways.

The Tata Group took control of Air India on January 27. A decision regarding merging Vistara — which is a 51:49 joint venture of the Tata Group and Singapore Airlines — with Air India is yet to be taken.

Meanwhile, Tata-owned carrier AirAsia India is in the process of being merged with Air India Express, an Air India subsidiary that operates flights mainly on India-Gulf routes. Vistara and AirAsia India recorded domestic market shares of 9.7 per cent and 5.8 per cent, respectively, in August, according to Directorate General of Civil Aviation (DGCA) data.

“If all the airlines of the Tata Group are consolidated, they will easily reach the target of 30 per cent,” said a senior aviation industry executive.

If the merger with Vistara does not take place, and if all the Indian airlines remain alive with SpiceJet and Go First returning to flying their full capacities, then Air India’s plan to increase the market share will be dependent on “airport infrastructure limitations (slots, parking bays, etc.)” to a large extent, the executive added.

SpiceJet is currently operating at less than 50 per cent capacity on account of restrictions placed by the DGCA on July 27 after its planes were involved in multiple incidents. Even before the restrictions, SpiceJet was operating fewer flights than in the pre-pandemic year of 2019. According to data provided by aviation analytics company Cirium, SpiceJet operated 28,305 domestic flights in the April-June period of 2022, which is 33 per cent less than the corresponding period of 2019.

Go First is operating less than 60 per cent of its flights because several of its aircraft are grounded.

There has been a huge demand for slots and parking bays at airports in metros and other large cities such as Delhi, Pune, Bengaluru, Chandigarh, Goa and Srinagar, among all Indian carriers. However, for India’s two full-service carriers — Vistara and Air India — slots at these airports are even more attractive as it is easy to fill forward cabins (business and premium economy) on flights originating from these stations.

Filling up forward cabins — especially premium economy — is not easy in the domestic market. Vistara, which introduced the premium economy class in the Indian market, has found through experience that there is extremely low demand for premium economy seats on several domestic routes.

Now, Air India is planning to introduce premium economy class in its planes. On September 12, Air India said it has leased 25 narrow-body and five wide-body aircraft, which will join its fleet by December 2023. Most of the newly-leased planes will have a premium economy class.

A senior Vistara executive said the demand for the premium economy segment on long-haul international flights is strong and it will continue to grow.

“When it comes to the domestic market, what is needed is smart deployment of aircraft on lucrative routes only. But on lucrative routes, there are no slots available,” the executive added.

Another executive said that after Covid-19, the demand for business and premium economy seats has gone up for Vistara, and that too not just among corporate passengers but also non-corporate passengers because they are looking for a little more social distancing, priority boarding, separate cabin, etc.

Despite this, the fact remains that premium economy seats do not get sold on several domestic routes, the executive added.

A Vistara spokesperson, however, said premium economy has been “very well received” by domestic and international customers.

“The three-class cabin configuration (business, premium economy and economy) has been one of our strongest USPs, and we have every intention of offering it on as many routes as possible,” the spokesperson added.

Vistara, which has been in red since its first flight in January 2015, incurred a net loss of Rs 2,031 crore in FY22.

Air India — under the Centre — incurred a net loss of Rs 9,556 crore in FY22. Air India did not respond to queries sent by Business Standard.

The Indian domestic market is dominated by low-cost carriers (LCCs). IndiGo owns around 60 per cent share in the domestic passenger market. It operated 134,349 domestic flights in April-June this year, which is 15 per cent more than in the April-June period of 2019, according to Cirium’s data.

Aviation consultancy firm CAPA, in its report in April this year, stated, “We are entering this new period of uncertainty with potentially more airlines (Akasa Air and Jet Airways) than were operating pre-Covid, together with the formal entry of Air India Express in the domestic LCC market strengthened by its likely merger with AirAsia India.

“This will intensify the hyper-competitive environment — both in the full-service and low-cost segments — and will mean that viability remains elusive for most,” it added.

A network planning executive of a low-cost carrier said that if Air India is aiming to reach the 30 per cent market share on its own — without being merged with Vistara — it will depend on where the next phase of growth of IndiGo will come from, how soon SpiceJet and Go First start operating full capacities, and how the new players like Akasa Air and Jet Airways perform.

Akasa Air, the new LCC in India, started its flight operations on August 7. Its first flight was on the Mumbai-Ahmedabad route. Immediately, a fare war began among LCCs on this route and by the first week of September, the ticket prices had dropped to as low as Rs 1,600 for a seat on the next day’s flight.

Akasa Air currently has four aircraft. The airline has said that its fleet size will go up to 18 aircraft — all B737 Max — by March 2023. By March 2027, the airline plans to have 72 B737 Max aircraft in its fleet.

Moreover, Jet Airways, which went bankrupt in April 2019, is now under a new ownership of the Jalan-Kalrock Consortium and is in the process of finalising its aircraft order. The airline plans to launch commercial flights by October.

Air India’s future market share, therefore, depends on many probabilities in India’s aviation industry.