Battle of the Giants: IndiGo vs. Tata Sons


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

But how does leader IndiGo compete with the power of Tata Sons, which is a much larger conglomerate, with more financial strength than the low-cost operator?

sharing the lion

Even though IndiGo, with a domestic market share of 59%, is well ahead of the rest, it is the international operations in which the airline will face stiff competition. If Tata Sons brings all airlines, Vistara, Air India, Air India Express and AirAsia India under one roof, its market share in the international sector will be around 19 percent compared to 13 percent for IndiGo. Domestically, however, the market share of the three combined entities will be around 20 percent, or nearly a third of IndiGo’s share.

IndiGo has an almost impregnable lead over the rest, and this is where the challenge for the combined airline entity of Tata Sons lies. IndiGo has been running away for a few years with market share, increasing it almost on a monthly basis even as those of others keep decreasing. It is not difficult to understand the reasons for this. It is perhaps the best managed airline in the country. The current losses are linked to Covid, rather than any inefficiency on the part of the airline.

However, for IndiGo, it might be difficult to maintain or increase market share from now on. The impact of the pandemic has been so huge for the airline that it has accumulated debt of around 10,000 crore over the past six quarters and its net worth is negative. His latest plans to raise around 3,000 crore have so far been unsuccessful. The closing balance of secured loans increased from 680 crore in FY20 to 2,500 crore in FY21. The interest rate on working capital loans ranges from 3.20 percent at 7 percent per year, according to a memo from ICICI Securities.

The aircraft lease obligation increased 14% from 84.10 crore in FY20 to 96 crore in FY21. However, Airplane Right of Use (RoU) asset increased 16% from 54.40 yen crore in FY20 to 63.10 crore in FY21. .

A higher increase in RoU per air could be due to lower SLB earnings (securities lending and borrowing) from deliveries during FY21. Based on liquidity details shown in the FY21 Annual Report, IndiGo expects a cash outflow of 11,000 crore over the next six months. The outflow due to rental liabilities is 7,300 over the next 12 months, which gives a rough idea of ​​the company’s annual rents. The total cash outflow from the additional rentals stands at 4,470 crore over the next 12 months, according to the note from Ansuman Deb and Ravin Kurwa.

To strengthen liquidity, IndiGo raised an additional 6,600 in FY 21. In addition, the company also announced additional liquidity measures of 4,500 crore for FY 22. It is also considering issuance of shares through the placement of qualified institutions up to 3,000 crore.

Silver lining

But there are positive points that cannot be ignored. Its recent codeshare deal with American Airlines, which 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 management, it remains optimistic that it will return to the February 21 national summits by the end of CY21, while achieving a full national recovery by the end of the fiscal year. IndiGo remains committed to improving liquidity and reducing unit costs. “We believe IndiGo continues to remain better positioned than its peers and is likely to emerge stronger after Covid with the industry-leading cost structure and a strong management team,” said Prabhudas Liladhar, a financial organization based in research in his report.

IndiGo, according to its website, has a total of 274 aircraft (all Airbus 320s); serves 72 national destinations and 24 international destinations. For Tata Sons, Air India alone will provide the group with access to 1,800 international landing and parking spaces at national airports; 900 abroad and membership in Star Alliance. The airline also has 1,500 well-trained pilots, 200 trained engineers and of course a fleet of 173 planes made up of various types of aircraft and a virtual monopoly of the Gulf market.

Add to that the 34 AirAsia India A320s, 240 routes; with 17 domestic destinations, while Vistara, in which Singapore Airlines has a 49 percent stake, has a total fleet of 46 aircraft. 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 come close to that of IndiGo. The integration of all airlines will be a major challenge. The culture of a public sector run by bureaucrats, along with that of a private airline run by professionals, cannot be ignored either.

Now might not be the right time to perform such an exercise in the market, considering aviation consultancy firm CAPA’s forecast for fiscal year 2022, which indicates Indian airlines will lose. Consolidated $ 4.1 billion, similar to fiscal 2021.

It will take two-year losses to around $ 8 billion from the two waves of Covid.

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