Archive for September 4th, 2010

Low Cost Airlines on Capex Spree as Air-Traffic Surges

After facing tough couple of years, India’s aviation sector is booming and low-cost operators seem to be getting a greater chunk of the business. While the trend globally has been turning in favour of low cost air-travel as high prices of crude makes mainstream carriers less competitive, in India, the change seems to happening at a rather swift pace.

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Most of the low-cost airlines have been enjoying 5-15% higher load factors compared with their mainstream counterparts, and this is also leading to ambitious capex plans by these companies. Most of the no-frill players are adding aircrafts to their existing fleet and have applications before the government for approvals for future acquisitions.

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In the latest such clearances given by the government,  the aviation ministry led empowerment committee has given the green signal for importing 46 new aircraft worth over Rs 19,000 crore by three low-cost carriers –  SpiceJet, IndiGo and Jet Lite. While the planes will arrive in a gradual way, some of these at least will be added to the fleet within the current calendar year.

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IndiGo, the largest low-cost carrier in the country has got an approval for 14 A-320s. The Gurgaon-based carrier currently has a fleet of 27 aircrafts and a market share of 16.9% in domestic market. It plans to increase its fleet to 35 within the current calendar year. It had earlier ordered a whopping 100 planes whose delivery is scheduled to begin from 2015-16, and the current orders are in addition to them.

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SpiceJet, another low-cost carrier, has received clearance for 30 Boeing 737-800s at a cost of about $2.7 billion (Rs 12,660 crore). Delivery for these planes will start from 2014. It will however add 8-10 planes, which had been ordered earlier, to its current fleet of 21 aircrafts within the current fiscal. The airline plans to operate 50 aircraft by 2014.

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Another no-frills carrier GoAir has also announced that it was in talks with Airbus to advance the delivery of 10 planes within a year. The Wadia Group-promoted airline currently has an all-Airbus fleet comprising of eight aircraft. While it already has plans to add two new Airbus A320s in the next two months, it wants to get advanced delivery of 10 out of a total order of 20 Airbus aircrafts in next one year.

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Ambitious capex plans as reflected in large number of aircrafts to be acquired by the low-cost airlines reflects their growing market share. Together, these carriers have already cornered nearly half of the market share if we add up the shares of low cost subsidiaries of mainstream carriers as well. Even the stand alone no-frill players have a one-third share of the market. With the air-traffic in the country growing at over 20% annually, the prospects to these carriers are certainly very bright.

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