With the government expected to officially declare the winner of the bid for Air India anytime soon, and which is most likely to be Tata Sons, IndiGo will finally have a strong competitor to contend with.

But how does the leader IndiGo match up to the might of Tata Sons, which is a much larger conglomerate, with more financial muscle than the low-cost operator?

Lion’s share

Even though IndiGo, with a domestic market share of 59 per cent is way ahead of the rest, it is the international operations that the airline is going to face tough competition in. If Tata Sons bring all the airlines, Vistara, Air India, Air India Express and AirAsia India under one roof, its market share in the international sector will be around 19 per cent compared with IndiGo’s 13 per cent. On the domestic front, however, all the three combined entities’ market share will be around 20 per cent, nearly one-third of IndiGo’s share.

IndiGo has an almost impregnable lead over the rest, and herein lies the challenge for the combined entity of Tata Sons’ airlines. IndiGo has been running away for a few years with the market share, increasing it almost on a monthly basis even as those of others keeps shrinking. It isn’t difficult to fathom the reasons. It is perhaps the best-run airline in the country. The current losses are Covid-related, rather than any kind of inefficiency on the part of the airline.

However, for IndiGo it might find it difficult to retain or grow the market share from now onwards. The impact of the pandemic has been so huge for the airline that it has accumulated debt of around ₹10,000 crore during the last six quarters and its net worth is negative. Its latest plans to raise around ₹3,000 crore has not been successful so far. The closing balance of secured loans increased from ₹680 crore in FY20 to ₹2,500 crore in FY21. The rate of interest on working capital loans ranges from 3.20 per cent to 7 per cent per annum, according to a note by ICICI Securities.

The lease obligation per aircraft increased 14 per cent from ₹84.10 crore in FY20 to ₹96 crore in FY21. However, the right-of-use (RoU) asset per aircraft increased 16 per cent from ₹54.40 crore in FY20 to ₹63.10 crore in FY21.

A higher increase in RoU per aircraft could be due to lower SLB (securities lending and borrowing) profits from deliveries in FY21. As per liquidity details stated in the FY21 annual report, IndiGo expects a cash outflow of ₹11,000 crore over the next six months. The lease liability-driven outflow is ₹7,300 over the next 12 months, which gives an approximate idea of the annual rental payments for the company. Total cash outflow due to supplementary rentals is ₹4,470 crore over the coming 12 months, the note from Ansuman Deb and Ravin Kurwa said.

To bolster liquidity, IndiGo raised ₹6,600 of additional funds in FY21. Besides, the company has also announced additional liquidity measures of ₹4,500 crore for FY22. It is also considering the issue of equity shares through Qualified Institutions Placement up to ₹3000 crore.

Silver lining

But there are positives that cannot be ignored. Its recent codeshare agreement with American Airlines that allows the US airline to sell seats on the Indian carrier’s flights on 29 routes will give the airline a much-needed boost to its operations.

According to IndiGo’s management, it remains optimistic of returning to Feb 21 domestic highs by the end of CY21, while achieving full domestic recovery by the end of the fiscal. IndiGo remains committed to enhancing liquidity and reducing unit costs. “We believe IndiGo continues to remain better placed than its peers and is likely to emerge stronger post-Covid with the industry-leading cost structure and strong management team,” Prabhudas Liladhar, a research-based financial organisation said in its report.

IndiGo, according to its website, has a total of 274 aircrafts (all Airbus 320s); flies to 72 domestic destinations and 24 international destinations. For Tata Sons, Air India alone will get the group access to 1,800 international landing and parking slots at domestic airports; 900 at foreign destinations and membership of the Star Alliance. The airline also has 1,500 well-trained pilots, 200 trained engineers and of course a fleet of 173 aircraft consisting of various types of aircraft and a near-monopoly of the Gulf market.

Add to it, AirAsia India’s 34 A320s, 240 routes; with 17 domestic destinations, while Vistara in which Singapore Airlines owns a 49 per cent stake, has a total fleet size of 46 aircrafts. The airline also operates international flights to five destinations, including Frankfurt.

However, these numbers are not enough for the combined entity to increase its market share or even get close to that of IndiGo’s. Integrating all the airlines will be a major challenge. The culture of a public sector which is run by bureaucrats, with that of a private airline run by professionals cannot be overlooked either.

It is perhaps not the right time to carry out such an exercise in the market, if one takes into consideration aviation consultancy firm CAPA’s forecast for FY2022, which says Indian airlines will lose a consolidated $ 4.1 billion, similar to that in FY2021.

This will take losses over two years to around $8 billion as a result of the two Covid waves.

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