Curious Case of Placing 1850 New Airplanes

In 2015, one of the biggest plane makers in the world, Boeing, had predicted for India a demand for 1,740 new airplanes valued at USD 240 billion over the next 20 years.

In 2016, it is saying that the country will need 1,850 new airplanes worth USD 265 billion over the next 20 years.

This increasing demand will be driven by single-aisle planes such as the 737 Max and Next-Generation 737s from Boeing and A320 Neos from its arch rival Airbus.

Boeing Corporation and others appear bullish about the Indian aviation sector, the fastest-growing market in the world in terms of passenger traffic as per the latest IATA numbers. Dinesh Keskar, Senior Vice-President for Asia Pacific and India, Boeing Commercial Airplanes interacted with media while releasing Boeing’s ‘Current market outlook for India’ report. 

Keskar elaborated on India’s need of more airplanes:

Type of Planes

Seats

Aircraft Nos.

Value USD (billion)

Single-aisle

90-230

1560

180

Wide-body

200+

280

85

Regional Jets

10

90

1

This will make India contributing to over 4.6 per cent of the global demand for 39,620 airplanes by 2035, and 4.5 per cent of world demand in terms of value,” Keskar said.

Attributing the bullish outlook to the new civil aviation policy, favorable demographics and low fuel prices, Keskar said, “India continues to have a strong commercial aerospace market and the highest domestic traffic growth in the world.”

Keskar commented on the government’s regional connectivity push, saying even as it has capped prices, the promise of refunding 80 per cent of losses, if any, will help the airlines drive the business. The government revamped rules governing the aviation industry, liberalising norms for domestic carriers to fly overseas and spreading the country’s air travel boom to smaller cities. “With the new aviation policies in place, we even see greater opportunities, and remain confident in the market and airlines sector in India,” Keskar said. Boeing

The potential for further growth is encouraging operators to scale up their fleets. At least 709 planes are on order for the next 5 years. Domestic carriers are shopping for airplanes one after another in the hope that demand will stay strong and India will eventually become the third-largest civil aviation market in the world after China and the US by 2026.

  • Jet Airways ordered 75 Boeing 737 Max in November 2015.
  • India’s largest player IndiGo, has ordered 430 Airbus narrow-body jets on top of the 108 it already flies. It is the largest order in aviation history from Airbus.
  • GoAir ordered 72 new A320neo planes from Airbus. It is planning an IPO while simultaneously it may begin International services.IndiGo adds more aircraft
  • SpiceJet intends to increase its fleet size to 150.
  • New entrants Air Asia India and full-service airline Vistara, a joint venture between the Tatas and Singapore Airlines, are accelerating their fleet expansion plans.
  • Vistara has said it will have a fleet of 13 aircraft and fly up to 20 destinations by the end of 2016. The carrier has now 11 planes.
  • Vistara is also considering branching into the regional commuter carrier business using 70-seater aircraft. A subsidiary tentatively named Vistara Express.

Big challenge : To find landing and parking spaces for new planes.

Vistara Chief Strategy and Commercial Officer, Sanjiv Kapoor said recently in a Twitter post, “Yet hundreds of A320s on order. Where will they all fly, am really curious!”

Even as Boeing predicts that India will have 1850 aircraft over the next two decades, several Indian carriers struggle today to operate their aircraft. Reason : Inadequate airport infrastructure. The airlines are just able to manage 2,000 flights a day, and only a few of them could touch the 90 percent on-time performance mark. As air travel heats up in India, the world’s fastest-growing major aviation market,  aviation infrastructure has miserably failed to keep pace with air traffic growth which has been phenomenal in recent past .

The average time an aircraft spends circling before it can land in Mumbai during peak hours is about 45 minutes to an hour, versus 25 minutes for Singapore and zero for Qatar, according to Dubai-based Martin Consulting LLC.

India plans to invest $5 billion to improve airport infrastructure, which is “inadequate” compared with China’s proposal for $130 billion in 15 years, a June research paper by KPMG and the Associated Chambers of Commerce of India said. A proposal for a new airport in the outskirts of Mumbai has languished on the drawing board since 1997. 

As much as $40 billion in investment is needed in the next 15 years to improve India’s airport infrastructure, according to estimates by Sydney-based CAPA Centre for Aviation.

“Infrastructure has to catch up as dynamics of aviation have changed,” said Mark D. Martin, founder Martin Consulting. “Countries must make sure that airports are built not just for bigger jets, but also for smaller, 5-10 seater planes to connect its people.”

The problem is not just limited to India. There has often been a gap between Mumbai Airportintention and infrastructure delivery for Asian airport, according to a 2015 research paper by OAG Aviation Worldwide.

It isn’t the case that India hasn’t done much in the past 10 years to develop airport infrastructure. It spent $2.7 billion to upgrade the airport in New Delhi and added a new terminal in 2010, while it spent another $885 million to modernize the Mumbai airport in 2014. 

Still there have been other airports which were not so lucky. There are 394 other unserved and 16 under-served airports in the country. Out of the nation’s 450 airstrips and airports, only 75 handle commercial airlines, with the rest remaining idle or rarely used because of weak demand, according to the government. “No aircraft movement takes place at 32 airports out of 125 airports, including civil enclaves belonging to Airports Authority of India (AAI),”Minister of State for Civil Aviation Jayant Sinha has said in a written reply to the Parliament.

Prime Minister Narendra Modi is trying to revive many of such unserved and under-served airports and airstrips to enhance regional connectivity. This has been a key highlight of the New Civil Aviation Policy. Weak demand have made many of these airports unviable even for commercial single-aisle jets. Moreover, in an effort to attract capital, Prime Minister Narendra Modi in June 2016 liberalised norms for foreigners, who can now fully own existing airports without government approvals.

jayant-sinha“In order to implement the scheme, a proposal has been submitted to the Ministry of Finance for making a budgetary provision of Rs 46,500 million to revive a total of 50 such airports/airstrips,” Sinha said in a written reply to the Rajya Sabha. “The scheme is to be implemented over a period of three years.”

Development and upgradation of airports is a continuous process and is undertaken by AAI depending on traffic demand, commercial viability and socio-economic considerations, among other factors.432526-sanjiv-kapoor-zeenews

“We need to move fast,” Sanjiv Kapoor said in an interview. “That’s a huge issue. You cannot have a commercial capital and a political capital that do not have slots available for growth,” he said, referring to Mumbai and New Delhi.

India finds itself hard-pressed to find parking slots for new airplanes. The lack of infrastructural facilities may even force carriers to defer deliveries. This will eventually immensely hurt plane makers like Boeing and Airbus Group SE.

Vistara’s First International Flights to Include South Asia and Gulf

Vistara forays into the International market.

Vistara to begin overseas operations with SAARC, Gulf after June 2018.

Options open to add either Boeing, Airbus or both aircraft to expanded fleet.

Vistara mulls regional routes as  part of its long-term growth plan.


In June 2016, the government of India partially scrapped the contentious 5/20 rule, which mandated an airline to have five years of domestic operational experience and 20 planes to become eligible for international operations, by removing the five years of domestic operational experience clause.25-vistara

The new rules came in amid strong opposition and hectic lobbying by older rival airlines like Jet Airways, Spicejet and Indigo. Under the new rules, domestic airlines can fly overseas provided they deploy 20 aircraft or 20 per cent of their capacity in the domestic market, whichever is higher.

It is to be noted that the newest airlines, the Tata Sons and Singapore Airlines promoted Vistara, and the budget carrier AirAsia India – a budget carrier also owned by Tata and Malaysia’s AirAsia Bhd – were behind the campaign to end the 5/20 rule. Now both are speeding up their fleet expansion plans so that they can fly overseas sooner and compete with local rivals Jet Airways and state-owned Air India. Both are devising their strategies after the government eased restrictions on overseas flights.

Vistara, which started operations on January 9, 2015, connects 17 cities now and Port Blair will be the 18th Indian destination from October. The number of daily flights has grown to 70 and may reach 100 by the end of the 2016. Its every aircraft does a 13-hour duty a day. It is the only airline in the country that offers a three-class configuration: the economy, the premium economy and the business class.

Currently, Vistara has only 11 aircraft at present and will get the delivery of two more A320s by October.

Vistara is not going to get the 20th airplane in its fleet before June 2018. It has said that it would not be rushing into international operations.

sanjiv-kapoorVistara Chief Strategy and Commercial Officer Sanjiv Kapoor interacted with the media recently. He pointed out his Company’s plans : Be it domestic or international, it is not going to be a walk in the park as an Indian airline, since each market is competitive. The airline has a measured approach towards its new venture. We are not rushing into international operations. It’s not a race for us. But we will definitely do it. We will get the delivery of our 20th plane by the first half of 2018. So, with the government retaining the 20-plane clause for international operations, we have the possibility of accelerating that, we are studying that, we haven’t made a decision. Again it is not just a question of get 21 and fly abroad, we need to get the rights, we need to get the slots, we need to get the partnerships in place, a whole lot of things to be set up. So, we are not going to accelerate just for the sake of accelerating. But if it makes sense to bring it in, bring in the 20 aircrafts little bit sooner we will do that but we haven’t yet made that call. Of course, we are reviewing and refining our international strategy.

Kapoor further said that their international operations will begin with the SAARC markets and the Gulf as their present set of planes (A320s) could serve short-haul markets the best.

“The first set of routes that we will launch internationally, will be the routes that can be flown by our existing aircraft (A320s which are narrow body planes by Airbus) which will be routes within three, three-and-a-half hours from our Delhi hub,” Kapoor said.

“So, that means South Asian nations will be our first focus international destinations along with the Gulf,” he said, adding markets like Bangladesh, Nepal, Bhutan, the Maldives, Sri Lanka and even Afghanistan have great potential. Although, 70 per cent of International air traffic from India goes westwards, Vistara opts to go reverse.

Kapoor also said the airline has been witnessing steady increase in its loads factor, which is one of the highest now at 90 per cent economy class and 80 per cent for overall three seating configuration, the airline was expanding its fleet and network at a steady pace and denied it was facing a cash crunch.

Kapoor also said that the airline, however, does not want to miss out on the growth in regional markets, with the civil aviation ministry coming up with its Regional Connectivity Scheme (RCS) while framing policy to link unconnected towns. A presence in regional markets could provide a feed for the airline’s mainline domestic and foreign routes.

“Most full-service airlines the world over have a commuter arm. The nature of (aviation) markets is such that airlines need to feed their hubs and a lot of it comes from small cities, which need small aircraft. There are two ways to do that. Either we get small aircraft or partner a regional airline. I am not talking of it (happening) instantly, but at some point, we will want a regional domestic feed,” Kapoor said.

Kapoor denied the airline was contemplating a regional play to speed up plans to fly abroad.

Kapoor said that the relaxation of the five-year and 20-aircraft rule for flying abroad and RCS were positive measures by the government but capacity constraints at major airports needed to be addressed.

“I do not think we can take profitable 20 per cent (annual) growth for granted until we fix infrastructure problems at major airports and until capacity addition is more measured. Certainly, there is a huge potential in India, but in the next two-three years the kind of aircraft we see coming is way above the market demand growth,” he said.

Earlier this month, Vistara Chief Executive Phee Teik Yeoh had said that the airline was readying a long-term plan for starting international operations and that he would meet the board with a plan within the next two months.

Vistara you see today is just tip of the iceberg: CEO Phee Teik Yeoh
Vistara you see today is just tip of the iceberg: CEO Phee Teik Yeoh

“There is no stopping us from preponing our aircraft deliveries, but we would like to go overseas only when we are ready. It’s not about to be the first, or the earliest, and not so much about how fast we go. I don’t see how all this can be done in the next 9-12 months. Easily, it’s a minimum one-year affair,” Yeoh had said earlier this month.

Yeoh had also said advancing the plane delivery is something that he would not rule out. “Advancing just to go overseas is not good enough. We should not lose sight of the fact that we have domestic operations to run,” he had said.

He had further said that the airline would induct wide-bodied, long-haul planes and consider starting direct flights to Britain and the US. 

Read : Airbus Clinches $12.5 bn Order from Air Asia

How soon Vistara launches its overseas operations will largely depend on two factors. One, it must have 20 aircraft. Availability of aircraft — through lease or purchase or a buy and lease back — will affect the timing of Vistara’s International flights service launch. Both the big airplane makers of the world – Boeing and Airbus – are busy fulfilling the earlier orders from IndiGo, GoAir, Spicejet, Air Asia and others. Vistara is way behind in the queue. Vistara should opt for small planes to get to the magical number of 20.

Read Out of the Ordinary Saga of Spicejet.

The second factor will be the positioning of service offering itself as Vistara will be competing with some of the best in class carriers. Currently, India has air services agreements with 109 countries, of which only 29 are being used by Indian airlines. As per Vistara, there are plenty of new destinations that can be explored while planning routes. The profile of the Indian consumer is changing fast and so also are their preferences for travel destinations. According to analysts, 45.7 million Indians traveled overseas in FY15. The share of Indian carriers got only 37 per cent share of this traffic.