Friday, June 30, 2017

Why IndiGo might be more serious than Tata to buy Air India

IndiGo, India’s biggest airline by market share, has formally expressed an interest in buying the troubled national carrier Air India which is about to be put on sale by the government, probably beating the Tata Group to making a formal approach with the authorities. But here’s the catch. IndiGo wants to preferably buy only the international operations of Air India and its low-cost airline Air India Express. Given IndiGo’s leadership in the domestic market with a hard-to-beat 41% share and its aggressive plans to expand overseas, it makes sense.
Air India is a distant third largest player in the Indian civil aviation market with a small 14% share. While that revenue would be a welcome addition to IndiGo’s kitty, it is Air India’s leadership in overseas passenger traffic with 17% of the international skies in its portfolio which is the main attraction for IndiGo, which itself has major ambition to quickly start adding international destinations to its network.
Expansion plan
IndiGo’s outstanding order for aeroplanes — the largest for any airline in the world — is a testament to this ambition. The airline has 458 aircraft on order, scheduled for delivery over the next decade, to add to its existing 135 aircraft, which is also the largest fleet for any airline in India.
The airline, operated by Interglobe Aviation, has made no secret about its plans to fly to more and more cities overseas, but so far is in nascent stages and is a small player with a paltry 3% market share. It flies to seven destinations overseas in six countries, all in Asia — three in the Middle East, two in southeast Asia, and one in south central Asia. Further, its expansion overseas is contingent upon the staggered delivery of the aircraft over the next 10 years.
Air India well placed
On the other hand, Air India, as mentioned above, is the market leader with 17% share, and flies to 41 destinations (including four on which the service is yet to begin) in 28 countries across four continents. Air India’s international presence, its huge fleet of 118 aircraft, including 43 wide-body planes — ideal for high capacity long-haul flights, and the accompanying fleet of experienced pilots and trained staff, is sure to airdrop any buyer into a prime slot in the overseas air travel business with lot of scope for expansion.
With the number of years of operations behind it, the size of the fleet of aircraft, and with its market position both at home and abroad, Air India floats comfortably above many regulatory requirements for expansion. Air India’s permits for flying routes within India and overseas, its parking slots at major airports around the world such as New York and London, its primetime departure slots at big airports, and some prime real estate across the country could offer a mouth-watering proposition to an ambitious buyer.
30/06/17 Financial Express