Supply constraints are airlines’ Achilles heel
Supply-side issues are a pressing worry for the Indian aviation industry. Not only have aircraft been grounded because of this, but new deliveries are also likely to be delayed. For instance, deliveries by Boeing could take a while as certifications for some of its new aircraft have been deferred since the Alaska Airlines incident in January, in which an unused door of a Boeing 737-9 Max flew off mid-flight.
Indian airlines’ order backlog has decent exposure to Boeing but IndiGo, the leading airline in terms of market share, is better placed than others. Kotak Institutional Equities notes that IndiGo’s order backlog has no exposure to Boeing. However, more than 70 of its planes – about 20% of its fleet as of the end of December) have been grounded because of issues with their Pratt & Whitney engines.
Overall demand is healthy, but it is not being fully met by supply. “Our assessment of the 1,200 domestic routes for January 2024 still suggests demand serviced on metro-to-metro routes is down from pre-covid levels," read the Kotak report dated 18 March. The number of domestic air passengers rose by a mere 1% year-on-year in February (adjusted for the extra day this leap year), the slowest growth in the past 24 months.
However, there are signs that this will pick up as daily trends in March indicate traffic growth of about 5% year-on-year, according to Emkay Global Financial Services. The opening of more airports should also help. While competition is intensifying, IndiGo’s market-share gains after Go First’s operations were suspended in May 2023 have driven its stock up by more than 74% in the past year.
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