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India’s domestic carriers have found a temporary respite in their failing financials and capacity shortfall following the grounding of Jet Airways in mid-April. The reduced capacity and high demand in the market has provided an opportunity for domestic carriers to raise fares. The Jet shutdown has also given access to its slots at space-constrained airports, including Mumbai and Delhi.
“Guidelines mandate only airlines that add aircraft have access to those slots,” Vishok Mansingh, director of Mumbai-based consultancy CAV Aero, told AIN. “SpiceJet and Vistara, as a result, have been quick to take Jet Airways aircraft on lease to get the slots.”
Jet’s misfortune has advantaged virtually all airlines in India. With 19 Boeing Max 8s grounded, Spicejet in the past month and a half has already inducted 13 Jet-configured Boeing 737NGs. In fact, SpiceJet plans to take over the leases on all 26 of Jet’s aircraft. Meanwhile, Tata-Singapore Airlines-owned A320 operator Vistara plans to take between 10 and 15 of Jet’s Boeing 737s on short-term lease. “This has helped in getting slots at airports,” said Mansingh. “Already, Vistara has increased its daily frequencies to five from Delhi to Bangalore.”
Following IndiGo’s earnings call early this week, CEO Ronojoy Dutta acknowledged Indian airlines have endured a tough fiscal year because of high fuel prices, a weak rupee, and an intensely competitive environment. “However, it is a tale of two halves for IndiGo, with the first half of the year incurring losses and the second half of the year experiencing a sharp recovery,” he said, attributing the improvement partially to Jet Airways’ cessation of services. “Overall for the quarter, we think that the Jet Airways failure effectively increased our unit revenue by 3- to 4 percent,” he said. “April revenues have been stronger than even March.”
Dutta said that as airlines add capacity to Jet Airways markets, its shutdown effects would dissipate by June “except in a few international markets, where we overlapped with Jet, as in the Middle East.”
The demise of 26-year-old Jet Airways, with its fleet of 120 aircraft, has turned loss into opportunity for the Indian aviation industry as it goes through a metamorphosis of sorts. It has reinvented and innovated itself smoothly through the crisis by stepping into Jet’s shoes by absorbing a large part of its leased aircraft, pilots and crew, and slots at congested airports.
This airline's demise is different from one in the recent past. When Kingfisher Airlines shut down seven years ago, lessors suffered financial losses and aircraft were not deregistered in a hurry. This time around the Indian market and regulatory procedures have reached a more mature level. In particular, the Cape Town Convention, of which India is a signatory, is being followed. “Overall, it is a much-improved story this time around and the fact that more than 80 aircraft got deregistered within 45 days itself is a testament to the current process. This gives much more confidence to the lessors in doing business in India,” Ranga Karumbunathan, managing director, marketing, Avolon Aerospace Dubai, told AIN.
The Cape Town Convention helps reduce risks related to asset-based financing and leasing transactions in civil aviation. The Convention ensures efficient financing of high-value mobile equipment such as airframes, helicopters, and engines and facilitates lessors' ability to repossess aircraft when airlines default on payments.
“This [process] is much improved this time around compared to the Kingfisher days,” said Karumbunathan. Issues that need to be addressed include which organizations not paid by defaulting airlines or who can or cannot make claims against lessors, he explained. “For instance, MROs like GMR Aerotech issued claims for Jet’s unpaid bills to lessors, which is totally frivolous and should not be allowed to slow the deregulation process." Most lessors agree that the regulator, Directorate General of Civil Aviation (DGCA), was very efficient in sticking to the five-day deadline for deregulation. However, many lessors have said on condition of anonymity that customs clearance has been and continues to be a drawn-out process when lessors wished to move the aircraft out of India.
Competitors Move In
Domestic carriers such as budget SpiceJet have been quick to gain from the Jet Airways closure. The carrier announced a 22 percent increase in net profit for the quarter ending in March compared to the same period last year. With 19 of its Boeing Max 8s grounded as a result of the global mandate, the airline has already inducted 22 of Jet Airways' 737-800s/900s, and it plans to add eight more. Once the clearance is given to fly the Max, the 800/900 models will be replaced by the Max.
Of some 480 airport slots given to airlines, SpiceJet got 130, mostly in congested Mumbai, allowing it to expand its routes faster than ever. SpiceJet has added 106 new flights since April as a result. The guidelines mandate that only airlines that add new aircraft have access to vacated slots. With SpiceJet having added 25 aircraft in April and May alone, it expanded its fleet to 100 by the end of May. It now operates 584 average daily flights.
Not wanting to lose business during the peak season of April/May in repainting and reconfiguration, SpiceJet adopted a hybrid livery and also made use of Jet Airways' already configured business class by selling the front seats at a higher fare but less than half the price of full-service airline Vistara, a Tata-Singapore Airlines joint venture. The airplanes are on short-term leases of one and a half years on an average, and most have Jet Airways captains and crew. Not only are the crewmembers believed to have taken salary cuts but they also come with the exceptional training of Jet Airways. While many look at the branding of SpiceJet creating some confusion in passengers' minds, revenues have taken the limelight. “We will review our plan whether to continue with business class SpiceBiz, from August,” said CFO Kiran Koteshwar.
Meanwhile, budget airline IndiGo “absorbed 285 Jet pilots for expansion" and has confirmed it will focus on its classic low-cost budget model, according to COO Wolfgang Prock Schauer. “The way we plan expansion is efficient. There is no sudden introduction of business class that brings in extra costs.”
Full-service airline Vistara is planning to take approximately 10 to 15 of Jet Airways' 737s on short-term lease. This has helped Vistara get more slots, and it was awarded 110. Already, Vistara has increased its daily frequency to five from Delhi to Bangalore.
The Jet Airways misfortune has helped revenue performance. “We have a Jet Airways bump that is pronounced in March and April and largely dissipates by June. And finally we have new capacity in high-yield markets,” said IndiGo CEO Ronojoy Dutta. On the fast expansion of Indian aviation, Dutta said, “There are those that say slower growth is good and fast is bad. For us that is not true.”
While IndiGo increased its capacity in the past quarter by 29 percent year over year and got access to 130 airport slots, Dutta said, “Our biggest choke point was Mumbai. Suddenly it opened up and made a big impact to our market.” He added that reduced capacity in the Middle East market, except in a few international markets “where we overlapped with Jet," will continue producing returns.
Jet Airways served more than 350 international routes, and it is likely the majority of these could go to Air India, which has the largest number of widebodies, with a few going to Vistara. The airline has purchased six Boeing 787-9s, scheduled to be delivered between 2020 and 2021, to be used for long-haul international operations.