Three Ways Jet Airways’ Shutdown Will Affect The Aviation Industry
While the shutdown of the full-service carrier will drive up airfares in the peak summer season, it will also throw up opportunities for airlines looking to increase their capacity, according to a report by Kotak Institutional Equities. The disruption caused by the cash-strapped carrier can lead to a temporary demand-supply mismatch in India’s aviation sector, the report said.
Here’s how Jet Airways’ shutdown will affect the sector:
The supply scarcity caused by Jet Airways’ crisis has already led to skyrocketing airfares. Aviation regulator grounding Boeing 737 Max planes operated by SpiceJet Ltd. has only added to the capacity shortage. “While other airlines will try to lease aircraft and drive up capacity, it may not be enough to fill Jet’s deficit,” the report said.
The shutdown of Jet Airways, which operated most of its flights to and from metros, will make air travel more costlier, it said. “This disproportionate capacity disruption on typically high yielding metro routes can drive fare prices up further.”
Jet’s Pain, Competitors’ Gain
Airlines such as IndiGo, SpiceJet, GoAir, Vistara and AirAsia are now looking to increase their capacities as Jet Airways grapples with its lenders, missing leadership and unpaid employees.
IndiGo was one of the few airlines which added capacity after the Vijay Mallya-owned Kingfisher Airlines shut shop in October 2012. The budget carrier, the report said, expanded its market share from 29 percent in the financial year 2012-13 to 38 percent in FY15.
India’s largest carrier will definitely see an increase in market share, the report said, adding that the disruption may provide a leg up to IndiGo’s international routes, given that the airline has the most stable positioning in the market.
However, the benefit from Jet’s shutdown will be more evenly spread across its competitors this time around compared to 2012 as other airlines have also been quick to expand this time around, the report said. “SpiceJet, GoAir, Vistara, AirAsia are also in the fray to benefit from this disruption, as these are all airlines with either decent financials or backing of strong promoters.”
Santosh Hiredesai, aviation analyst at SBICAP Securities, expects SpiceJet to benefit the most among peers “as it’s the only other airline that has a fleet of Boeing planes”. “More importantly, the airline would find it easier to induct trained pilots,” he told BloombergQuint last week.
Some of the international air traffic carried by domestic airlines may even be lost to foreign players, given Air India is the only airline with a fleet of wide-bodied aircraft, the report said. Vistara, too, has plans of adding aircraft to its fleet, though it may be unable to do so in the near term, it said.
The vacant parking slots of Jet Airways will be an opportunity for airlines such as IndiGo, SpiceJet and Vistara, who are all aspiring to ramp-up their international operations, the report said.
The Directorate General of Civil Aviation’s regulations said that if a slot does not have an operating flight in it for a month, it falls vacant. The aviation regulator has already started reallocating Jet Airways' slots to other airlines on a temporary basis.
While bankruptcies and restructurings are treated as special cases, limited clarity on when or if Jet Airways will resume its flights has cast a shadow of doubt on its vacant slots, the report said.