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India’s booming LCCsIndia’s booming LCCsIndia’s booming LCCsIndia’s booming LCCs

CAPA Global LCC Summit, Singapore, 25 February 2019

Binit SomaiaBinit SomaiaBinit SomaiaBinit Somaia

[email protected]@[email protected]@capaindia.com

© 2019 CAPA India

DisclaimerDisclaimerDisclaimerDisclaimer

The information and analyses contained in this report have been prepared by Centre

for Asia Pacific Aviation India (CAPA India). The contents of the document are

confidential.

While every effort has been made to ensure that the report adheres to the highest

quality and accuracy standards, CAPA India assumes no responsibility for errors and

omissions related to the data, calculations or analysis contained herein, and in no

event will CAPA India, its associates, subsidiaries, directors or employees be liable for

direct, special, incidental or consequential damages (including but not limited to

damages for the loss of business profits, business interruption and loss of business

information) arising directly or indirectly from the use of (or failure to use) this

document.

This document contains forward-looking statements. Such statements may include

the words ‘may’, ‘will’, ‘plans’, ‘estimates’, ‘anticipates’, ‘believes’, ‘expects’, ‘intends’

and similar expressions. These statements are made on the basis of existing

information and simple assumptions. Such forward-looking statements are subject to

numerous caveats, risks and uncertainties, which could cause actual outcomes to be

materially different from those projected or assumed in the statements.

IMPORTANT NOTES

Use of any data, information, or portions of this document without prior written

consent of CAPA India is strictly prohibited. Data is for illustrative purpose only.

Some data points/numbers have been approximated for confidentiality.

© 2019 CAPA India

Domestic Airline Passengers in India FY1952-FY2019E

After 50+ years of relative dormancy since independence, After 50+ years of relative dormancy since independence, After 50+ years of relative dormancy since independence, After 50+ years of relative dormancy since independence,

India’s aviation sector came to life around 15 years ago India’s aviation sector came to life around 15 years ago India’s aviation sector came to life around 15 years ago India’s aviation sector came to life around 15 years ago

Source: CAPA India research and analysis, DGCA

0

20

40

60

80

100

120

140

FY52 FY55 FY58 FY61 FY64 FY67 FY70 FY73 FY76 FY79 FY82 FY85 FY88 FY91 FY94 FY97 FY00 FY03 FY06 FY09 FY12 FY15 FY18

Mil

lio

ns

India’s first

LCC launches

© 2019 CAPA India 6

India’s first LCC – Air Deccan – launched in 2003.

Experienced “pioneer’s curse” – brand disappeared by 2007.

Set the scene for today’s vibrant LCC sector.

Source: CAPA Fleet Database, DGCA

LCCs have stimulated and transformed Indian aviation beyond recognition; LCCs have stimulated and transformed Indian aviation beyond recognition; LCCs have stimulated and transformed Indian aviation beyond recognition; LCCs have stimulated and transformed Indian aviation beyond recognition;

they crossed the threshold of 100 million pax in 2018they crossed the threshold of 100 million pax in 2018they crossed the threshold of 100 million pax in 2018they crossed the threshold of 100 million pax in 2018

LCC Current Fleet Aircraft on Order Pax in 2018

IndiGo 213 396 61.8 mn

SpiceJet 75 188 19.3 mn

GoAir 49 114 12.5 mn

AirAsia India 20 0 6.8 mn

Total 357 698 100.4 mn


LCCs now command a 69% share of the Indian domestic marketLCCs now command a 69% share of the Indian domestic marketLCCs now command a 69% share of the Indian domestic marketLCCs now command a 69% share of the Indian domestic market

Airline-wise share of domestic passengers in CY2018

Source: CAPA India, DGCA

IndiGo, 43%

SpiceJet, 12%

GoAir, 9%

AirAsia India, 5%

Jet Airways, 14%

Air India, 12%

Vistara, 4%


14

9

17

0

120

130

140

150

160

170

180

Se

ats

de

plo

yed

(m

n)

Capacity Seats reduced Seats added

Breakdown of seat capacity added in Indian domestic market during the period FY2018-19

Source: CAPA India research and analysis; OAG

LCCs accounted for close to 100% of domestic capacity growth in FY2019,LCCs accounted for close to 100% of domestic capacity growth in FY2019,LCCs accounted for close to 100% of domestic capacity growth in FY2019,LCCs accounted for close to 100% of domestic capacity growth in FY2019,

IndiGo represents around twoIndiGo represents around twoIndiGo represents around twoIndiGo represents around two----thirds of this expansionthirds of this expansionthirds of this expansionthirds of this expansion

FSCs net addition: 0.04mn seats LCCs net addition: 21.2mn seats


Strong economic fundamentals – GDP growth 15 year CAGR over 7%

Changing consumer trends – younger generation prioritising consumption

Comparable railway capacity and road infrastructure remains limited

Price sensitive market that can be stimulated by lower fares

Rapid acceptance of LCC product

●New aircraft, limited need for frills on <2 hour sector, on-time-performance

●Punctuality resulted in corporate travel shift, LCCs became mainstream

● First time travellers had no full service experience to compare with

Highly under-penetrated – seats/capita remain well behind other large markets

Key drivers of the growth of LCCs in IndiaKey drivers of the growth of LCCs in IndiaKey drivers of the growth of LCCs in IndiaKey drivers of the growth of LCCs in India

© 2019 CAPA India

0.04

0.09

0.46

0.67

0.71

1.00

1.09

1.34

1.62

1.80

1.95

2.15

2.76

3.40

3.74

4.35

7.02

11.01

13.31

21.30

0.00 5.00 10.00 15.00 20.00 25.00

India

China

Russian Federation

Japan

United States

Turkey

Thailand

South Korea

Canada

Malaysia

Italy

France

Germany

Spain and Canary Islands

United Kingdom

Netherlands

Switzerland

Hong Kong

Singapore

United Arab Emirates

0.07

0.30

0.34

0.36

0.38

0.41

0.42

0.43

0.43

0.49

0.59

0.64

0.65

0.81

1.04

1.18

1.57

2.59

3.50

5.24

- 1.00 2.00 3.00 4.00 5.00 6.00

India

Philippines

China

Mexico

Russian Federation

Indonesia

United Kingdom

Germany

Thailand

France

Italy

Turkey

Brazil

Spain and Canary Islands

Malaysia

Japan

Canada

United States

Australia

Norway

Ranking by international seats per capita

of 20 largest markets

Ranking by domestic seats per capita

of 20 largest markets

Despite recent rapid growth, the Indian market remains highly underDespite recent rapid growth, the Indian market remains highly underDespite recent rapid growth, the Indian market remains highly underDespite recent rapid growth, the Indian market remains highly under----

penetrated. The upside potential is massive. penetrated. The upside potential is massive. penetrated. The upside potential is massive. penetrated. The upside potential is massive.

Source: CAPA India research and analysis, OAG, World Bank


India

Foreign

IndiGo

Air India

Express

SpiceJet

GoAir

AirAsia

Group*

Air Arabia

ScootOthers

Indian

Foreign

Air India

Express

Air Arabia

Tiger Air

Mihin Lanka Others

DDDDuuuurrrriiiinnnngggg FFFFYYYY2222000011119999,,,, IIIInnnnddddiiiiGGGGoooo oooovvvveeeerrrrttttooooooookkkk AAAAiiiirrrr IIIInnnnddddiiiiaaaa EEEExxxxpppprrrreeeessssssss

to become the largest LCC on international routes to/from Indiato become the largest LCC on international routes to/from Indiato become the largest LCC on international routes to/from Indiato become the largest LCC on international routes to/from India

Key LCC operators on international routes to/from India FY2019E v. FY2009

Note: *Includes AirAsia, AirAsia X, Thai AirAsia and Indonesia AirAsia XSource: CAPA India research and analysis; OAG

FY2019EFY2009


Tremendous demand for international travel, particularly outbound

Opportunity to stimulate traffic with non-stop services

Leading international carriers operating at year-round average PLF of 85-90%

Largest foreign carriers are bilateral constrained

Indian FSC international expansion may be limited in the near-term

IndiGo, SpiceJet and GoAir expected to accelerate international growth

AirAsia India plans to launch international services

>30% of LCC fleet inductions in FY2020 expected to be deployed on international

Opportunity to expand LCC services on international routesOpportunity to expand LCC services on international routesOpportunity to expand LCC services on international routesOpportunity to expand LCC services on international routes


Source: CAPA India research and analysis, AirportIS

The majority of long haul and ultra long haul OD traffic to/from India The majority of long haul and ultra long haul OD traffic to/from India The majority of long haul and ultra long haul OD traffic to/from India The majority of long haul and ultra long haul OD traffic to/from India

involves more than one stop, creating opportunity for Indian LCCsinvolves more than one stop, creating opportunity for Indian LCCsinvolves more than one stop, creating opportunity for Indian LCCsinvolves more than one stop, creating opportunity for Indian LCCs

Breakdown of India’s international traffic across various stage lengths (FY2013 and FY2018)

© 2019 CAPA India

Domestic Airline Passengers in India FY1952-FY2019E

Countries with the largest LCCS in Southeast Asia and the Gulf have Countries with the largest LCCS in Southeast Asia and the Gulf have Countries with the largest LCCS in Southeast Asia and the Gulf have Countries with the largest LCCS in Southeast Asia and the Gulf have

mostly exhausted bilateral entitlements to operate to Indian metrosmostly exhausted bilateral entitlements to operate to Indian metrosmostly exhausted bilateral entitlements to operate to Indian metrosmostly exhausted bilateral entitlements to operate to Indian metros

Source: CAPA India research and analysis, DGCA

Access to Metros Access to 18 Non-Metros

Singapore Open Sky

Thailand Open Sky

Malaysia Open Sky

Dubai

Sharjah

© 2019 CAPA India

ASEAN carriers have unlimited access to 18 Indian nonASEAN carriers have unlimited access to 18 Indian nonASEAN carriers have unlimited access to 18 Indian nonASEAN carriers have unlimited access to 18 Indian non----metro citiesmetro citiesmetro citiesmetro cities


Current and announced LCC destinations to/from India (Indian and foreign LCCs)

Source: CAPA India research and analysis, OAG, GCMapper

PPPPrrrrooooffffiiiilllleeee ooooffff LLLLCCCCCCCC ddddeeeessssttttiiiinnnnaaaattttiiiioooonnnnssss:::: mmmmoooorrrreeee lllloooonnnnggggeeeerrrr hhhhaaaauuuullll eeee....gggg.... HHHHoooonnnngggg KKKKoooonnnngggg aaaannnndddd IIIIssssttttaaaannnnbbbbuuuullll;;;;

and more leisure destinations e.g. Phuket and the Maldives and more leisure destinations e.g. Phuket and the Maldives and more leisure destinations e.g. Phuket and the Maldives and more leisure destinations e.g. Phuket and the Maldives


Scissor operation at Central Asian or Middle Eastern airport for serving European airports from India

Source: CAPA India research and analysis, GCMapper

IIIInnnnddddiiiiaaaannnn LLLLCCCCCCCCssss aaaarrrreeee iiiinnnniiiittttiiiiaaaallllllllyyyy eeeexxxxppppeeeecccctttteeeedddd ttttoooo tttteeeesssstttt lllloooonnnngggg hhhhaaaauuuullll ddddeeeessssttttiiiinnnnaaaattttiiiioooonnnnssss

using long haul using long haul using long haul using long haul narrowbodynarrowbodynarrowbodynarrowbody equipment on a 1equipment on a 1equipment on a 1equipment on a 1----stop basisstop basisstop basisstop basis


Indian FSCs have unit costs approximately 30% higher than LCCs, Indian FSCs have unit costs approximately 30% higher than LCCs, Indian FSCs have unit costs approximately 30% higher than LCCs, Indian FSCs have unit costs approximately 30% higher than LCCs,

even on a stage lengtheven on a stage lengtheven on a stage lengtheven on a stage length----unadjusted basisunadjusted basisunadjusted basisunadjusted basis

CASK of Indian Carriers in FY2018 (INR)

Source: CAPA India research and analysis

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

Vistara Jet Airways Air India SpiceJet AirAsia India IndiGo GoAir


In the current financial year, every LCC is In the current financial year, every LCC is In the current financial year, every LCC is In the current financial year, every LCC is likelylikelylikelylikely to report a net loss, to report a net loss, to report a net loss, to report a net loss,

and every FSC and every FSC and every FSC and every FSC willwillwillwill report a net lossreport a net lossreport a net lossreport a net loss

Consolidated Industry Net Profitability

Source: CAPA India research and analysis

-1600

-1400

-1200

-1000

-800

-600

-400

-200

0

200

FSCs LCCs

US

D m

illi

on

CAPA Projections for FY2020

-1600

-1400

-1200

-1000

-800

-600

-400

-200

0

200

FSCs LCCs

US

D m

illi

on

CAPA Estimates for FY2019


Challenges

Airport infrastructure constraints

Skills shortages (particularly commanders)

Potential upside

Re-fleeting with NEO/MAX equipment is reducing operating costs by close to 10%

Likely inclusion of ATF under GST would reduce costs by a further 10%

Key Strategic IssuesKey Strategic IssuesKey Strategic IssuesKey Strategic Issues

india’s booming lccs · india’s first lcc – air deccan – launched in 2003. experienced...

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