New airlines in India will still have to wait for around five years to fly overseas despite a policy change, industry experts said, since it takes about that much time for an airline to buy 20 aircraft, a stipulation that remains in place even after scrapping the requirement to operate locally for five years before flying abroad.
Vistara, run by Tata SIA Airlines Ltd, has completed a year and a half, while AirAsia India, run by AirAsia Group Bhd and Tata Sons Ltd, recently completed two years.
“Even by a conservative estimate, with the induction of both new and pre-owned aircraft, it would take an average airline a minimum of 60 months or five years to saturate up to a 20-fleet airline, while balancing profitability and operational viability keeping the current competition in view,” said Mark D. Martin, founder and chief executive officer at Martin Consulting LLC, which specializes in aviation.
“Albeit that said, getting to a 20-fleet airline with the blend of dry and wet-leased aircraft could at the most lower the uptime to 48 months, but in any scenario, timelines still stand at 4 to 5+ years for an airline to reach 20 aircraft,” Martin said.
Vistara chairman Bhaskar Bhat had hinted on Tuesday that the airline will place aircraft orders based on clarity on the so-called 5/20 rule, and would prefer leasing more planes for expansion.
Amar Abrol, chief executive officer, AirAsia India, said on Wednesday that the airline will now focus on aggressively investing in India and increasing the fleet size from six at present and achieving the target of 20 aircraft.
However, experts are not convinced.
“The 5/20 change to 0/20 is a non-event and may not impact anyone in a big manner,” said K.G. Vishwanath, a partner at consulting firm Trinity Aviation Consultants Pte. Ltd of Singapore. “For smaller airlines such as Vistara and AirAsia India, it would anyways take three-plus years to set up a strong domestic feed network before embarking on their international operations. Not just that, to be able to get enough crew and maintenance infrastructure for a 20-aircraft operation is not so easy.”
Martin also said there is a shortage of qualified senior pilots in the Asia-Pacific region.
“While sustainable revenue and managing competition is key, the airline business globally is also dealing with increasing external cost factors such as the rising price of oil, which now stands near $50 a barrel; a strong dollar or euro and a weak local currency; increased domestic inflationary pressures and supply chain delays, which we believe will continue to push back aircraft deliveries,” he said.
He said the average break-even for a low-cost airline today is 18-24 months, while for a full-service carrier, that can go up to 60-84 months. “The 5/20 rule was to ensure that an airline was required to ‘stand-on-its-feet’ before its takes the step to go international,” Martin added.
According to Kapil Kaul, chief executive officer (South Asia) at aviation consultancy firm Capa India, speeding up expansion is not an option for AirAsia India and Vistara, since initial capitalization has been exhausted, operations continue to be loss-making and fast-tracking will mean more cash burn.
Vistara, the full-service airline run by a joint venture between the Tata group and Singapore Airlines Ltd (SIA), is expected to turn profitable within five years of starting operations, Bhat had said. Vistara started operations in January 2015; so, Tata and SIA are looking at turning a profit in 2019-20.
In an interview in March, however, Tony Fernandes, group chief executive officer at AirAsia Group, said the India unit started making money in December 2015.
An airline executive, requesting anonymity, said carriers will find it difficult to access capital to start international operations.
“IndiGo, the largest and most profitable airline in India, is going slow on its international operations. International operations are not that easy. It takes time. Sadly, many airlines were unable to plan as there was no clarity in the 5/20 policy till Wednesday,” he said.
For instance, Mittu Chandilya, former managing director and chief executive officer of AirAsia India, in November 2015 had said that the airline had held back its growth while waiting for various changes in the industry to settle down, referring to the 5/20 rule.