The aviation market is poised to welcome new players, including Akasa and Jet Airways, with record cost of assets, talent in abundance, and legacy airlines struggling with legacy issues.
The new airlines will be able to operate at reduced costs at a time when passenger traffic is expected to rebound.
Recently, Rakesh Jhunjhunwala decided to invest in Akasa, an airline founded by former Jet Airways CEO Vinay Dube. Jet Airways also plans to resume operations by the end of the year under the leadership of its new owners, the Kalrock-Kalan consortium. This comes at a time when all historic airlines are facing huge headwinds and mounting losses. Aviation is an industry in India where at least 50 players have gone out of business over the past three decades.
Face the headwinds
But according to Koushik Jagathalaprathaban, partner, AT-TV, a consultancy firm, the market is currently extremely ripe for the entry of a new player, particularly “with cost of assets at historically low levels, talent in abundance. and airlines unable to reset their cost bases ”.
IndiGo, SpiceJet and Vistara negotiated leases, deferred payments to suppliers and reduced employee costs.
Pilots lose their jobs
It’s a boon for start-up airlines, experts say, to get good talent at a lower cost. Vinamra Logani, COO of Sarin & Co, pointed out that after the shutdown of Jet Airways in 2019, several pilots were unemployed.
With the pandemic at its peak, several Indian pilots employed by Gulf airlines have also been made redundant. In the current scenario, this would be extremely beneficial for start-ups when it comes to hiring good talent.
In addition, original equipment manufacturers (OEMs) such as Boeing, Airbus and Embraer will be more than willing to negotiate for an order for large aircraft. Even if they opt for the SLB (sale and leaseback) route, lessors will be available to give them a better deal, Logani said.
Even if existing players will try to reduce costs, they will not have much of a difference from the pre-pandemic cost base, “while a new entrant can set up a new cost base and, therefore, has a chance to be more profitable ”. This is the potential that AT-TV believes Junjunwala sees.
But Logani said there was more to the current low costs. A major boon for new entrants, according to Logani, is that despite the pandemic, Indian airports have continued to increase capacity. Delhi and Bengaluru airports will soon get their fourth and second runways. In the coming years, Navi Mumbai Airport is also expected to be operational.
“So for any start-up airline, landing slots at key airports will not be scarce, which is extremely important for new airlines,” Logani said.
Price sensitive market
From a market perspective, Logani said that even today, only four percent of Indians fly. With India being a price-sensitive market, new ultra-low-cost carriers with a healthier track record will be in a better position, while existing airlines are still looking to raise funds to stay afloat.
Kavita Chacko, Senior Economist, Care Ratings and Logani believe new entrants would be better placed in this case to be able to offer more discounts.
“We noticed in the recent past that there was a pent-up demand for travel. This means that even if people don’t have a lot of money, they would like cheaper options for traveling, ”Chacko said.