Tuesday, January 05, 2016

Fare wars, flash sales, capacity addition & capital raising on aviation’s flight path in 2016

Lower ticket prices, a pick-up in air traffic and the listing of InterGlobe Aviation Ltd, the firm that runs IndiGo airline, were the highlights of 2015. This year could be equally exciting with the sector adding capacity and awaiting changes in regulation, even as individual airlines continue to tweak their strategies to get a larger piece of India’s fast-growing market.

Regulation and policies

The 5:20 rule disallows any airline less than five years old and with less than 20 aircraft to fly internationally. New airlines such as AirAsia India and Vistara will set their sights on any possible change in this policy. Airport tariffs are another bone of contention. Recently, GMR Infrastructure Ltd said the aviation ministry has asked the tariff regulator to implement a tariff model for Hyderabad , which would help it earn higher revenues than a previous model proposed by the regulator.

Low-fare warfare

Despite the return of full-service airlines, low-fare airlines are expected to increase their market share. Consulting firm Capa India expects low-fare airlines’ market share in the next two years at 70-75% as they re-emerge stronger. Capa is also expecting consolidation in the airline sector.

Capacity, capacity and more capacity

Airlines are raising capacity massively to capture market share. But demand has not kept pace. IndiGo has placed firm orders for 250 Airbus A320neo planes. It also has purchase rights for 100 more planes. IndiGo has previously placed orders for 280 Airbus aircraft. Low-fare airline GoAir had earlier ordered 72 A320neo planes. New airlines such as Vistara and AirAsia India are also adding more planes to boost capacity, while incumbents such as Air India and Jet Airways are expanding at a moderate pace. SpiceJet, which had to cut its fleet by one-third last year, is now leasing more planes and plans to place orders for 150 new aircraft.
05/01/16 Deal Street Asia
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