Issue No. 744

Will Anyone Buy Air India?

Air India, a notoriously bloated state organ, is again up for sale by India’s government. In April, Jet Airways stopped flying, eliminating Air India’s only home-grown rival on intercontinental routes. The two airlines competed vigorously on shorthaul international routes as well, and domestic routes. Good news for Air India?

Not really. Immediately after Jet’s collapse, Air India surely took advantage, adding flights to Dubai, for example, and replacing B787s with larger B777s on its Mumbai-London Heathrow route. Air India also launched a new nonstop from Delhi to Toronto, a city Jet served via Amsterdam. Already by March of this year, with Jet disintegrating, India’s airports were collectively showing y/y traffic declines, symptomatic of a supply shock that lifted yields for all carriers including Air India. In April, domestic passenger volumes at Delhi’s airport fell 18% y/y, according to Airports Authority of India. Domestic traffic at Jet’s home airport Mumbai plummeted 23%.

But the honeymoon was short-lived. By June, India’s airports were growing again. By September, the latest month for which data are available, even Delhi’s traffic was up y/y, if not Mumbai’s quite yet. The two airports, in the year to March, handled 69m and 49m passengers, respectively, together representing about one-third of India’s total airport traffic. Note that India’s domestic traffic grew at a double-digit pace for more than four years before Jet’s collapse. And now it’s growing in the high-single digits again. That’s thanks to a phenomenon not unlike that which shaped the German and Austrian markets after Air Berlin’s demise — the strongest low-cost carriers are quickly filling the vacuum. And that, to be sure, is not a welcome development for Air India. It was easier competing with Jet, especially on shorter routes where premium cabins aren’t much of a factor.

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