Hi Amar, thanks for the feedback. While I agree with you, as investors we should be looking at the margin expansion. Tier 2/3 cities have quite less margins(I believe in single digits) unless indigo has monopoly on the routes. Indigo does have that at a lot of places today.
Take my hometown , Bhubaneswar , as an example. Until 6 months back it had a total of 32 departures to 8 cities. Barring 12 flights to delhi and Mumbai served by various airlines, indigo had a monopoly on the routes to other 6 cities with high pricing. It continued for years. Until recently when AIX came on a rampage, on back of their extreme quick deliveries of 737s and their merger with Air Asia. Now while the city pair still stands at 8, the departures in bhubaneswar have risen to 58. Because AIX has started the city pairs.
There are still so many airports and routes in India where they have a monopoly. According to a money control article in 2023, 552 out of 1048 routes in India , indigo is the sole operator.
There is a reason I have shared this example.
As of December 2020, the total number of commercial aircraft in India was approximately 650. Here’s the breakdown by major airlines:
• IndiGo: 280 aircraft
• Air India: 118 aircraft
• Vistara: 40 aircraft
• GoAir (now Go First): 36 aircraft
• AirAsia India: 18 aircraft
• SpiceJet: 36 aircraft
You see, indigo always has been a beneficiary of capacity chaos. If you combine all the aircraft’s of the other players, indigo had more capacity thanks to its robust operations and cash discipline, something alien to all the other competitors.
Everytime a competitor introduces a route, indigo will add multiple frequencies on the same, sometimes at the same time as well, and eventually drive them out of the competition by forcing them to exit. This is what been blessed with capacity looks like.
Every 5-6 years, some airline will declare bankruptcy, and indigo will eat away its slots and routes as well in record time. Another blessing of capacity.
Every airlines was extremely small to take on the Goliath and their financial sheets showed the results.
You see, capacity is something that cannot be solved easily, even with deep pockets. Why? Because of duopoly in the aircraft manufacturers, Boeing and Airbus. They have delays up to 5 years now and if you go and place an order, you would start getting deliveries 6-7 years later. That is how bad it is. Last few months we have been seeing airlines in India putting orders for 400-500 aircrafts each. Let me tell you, all the deliveries for them start post 2027.
But times have changed a bit. Last few years of uncertainty and covid opened some exciting options and our friend air India grabbed them quickly. In fact, a new competition Akasa, did impressively also. Air India grouped merged 4 airlines into 2 and gave headache to 6E by going all out.
Let’s look at the current capacity numbers today:
As of December 2024, the total number of commercial aircraft in India was approximately 773. Here’s the breakdown by major airlines:
• IndiGo: 387 aircraft
• Air India: 210 aircraft
• Air India Express: 90 aircraft
• Akasa: 26 aircraft
• SpiceJet: 60 aircraft
On a group wise level: Here’s the breakdown by major airlines:
• IndiGo: 387 aircraft
• Air India Group: 300 aircraft
• Akasa: 26 aircraft
• SpiceJet: 60 aircraft
You see, on a group level, AIX has come very close, thanks to the sanctions on Chinese, the Russians and Covid-19. Both AI and AIX are competing with Indigo domestically and internationally as well, sometimes under cutting 6E by premium seats. And AIX has been able to quickly add flights to the domestic network as well, taking away a lot of space from indigo.
I have tried to justify why i feel domestic seats feels commoditized . And as shareholders why we should expect more action internationally as it provides scope for margin expansion. And why tier 2-3 cities might not be game changers. Because its easy to replicate . And so many airlines died painting a story of domestic demand and connectivity in the past.