Room In The Sky: Within Two Years Of Akasa Air Launching, Decades-Old Spicejet Is Faltering

Firstly, the country’s civil aviation regulator, the Directorate General of Civil Aviation (DGCA), recently placed the budget carrier SpiceJet under 'enhanced surveillance', a move that would further complicate the cash-starved carrier's flight path.

The DGCA move implies that SpiceJet, which has been in operation for decades, will now have to go through increased spot checks and night surveillance to ensure the safety of the airline's operations. 

The second news from the industry which almost coincides with the first, is that of Akasa Air, another budget airline. Two big business houses are believed to be planning to inject money into the two-year-old carrier.

According to reports, the consortium of Premji Invest and Ranjan Pai-backed Claypond Capital will invest about US$ 125 million into Akasa Air. The airline that commenced commercial operation in August 2022 is already in a race with SpiceJet for market share.

This infusion of funds couldn’t have been more timely for the airline. The consortium has engaged Alvarez and Marsal to monitor the process and go ahead with the due diligence.

Akasa Vs Spicejet Airlines

In May, Akasa Air overtook SpiceJet in domestic market share for the second time despite the initial hiccups with poaching of pilots and mass flight cancellations. The going got tougher after the airline filed a legal case against the pilots. However, the airline has been proven to be nimble on its feet in containing the problems.

Akasa Air has not only improved its market share but also its on-time performance. The number of aircraft flown by it has also gone up. 

When it was launched, the Rakesh Jhunjhunwala-led consortium played a key role in the launch of Akasa Air. It has onboarded former Jet Airways CEO Vinay Dube, who is now the chief of Akasa. Another big name in aviation - Aditya Ghosh, credited for the success of Indigo Airline - is a co-founder of the airline.

Importantly, sound financial management has been the focus of the Dube-Ghosh duo who managed to keep a lid on the expenses of the airline from its initial days. Last month, in a television interview, Dube claimed that Akasa would become profitable much faster than any other airline in history.

“Our EBITDA margins improved by over 30 points. In 2023-24 our losses as an early-stage company are not surprising, as we continue to expand and with the expansion our cost structure is getting much more competitive,” Dube said.

“The entry of Akasa Air took place at a good time. When Akasa Air came, Go First airline shut down. It gave Akasa an opportunity to absorb the traffic which otherwise was with Go First... Akasa’s fundamentals are strong, it's expanding bit by bit and looks like a good story,” said U K Bose, former CEO of Air Sahara.

Fund Infusion Is The Key

Globally, the airline industry’s survival is dependent on timely capital infusion and fund size. The Indian market is no different. The future of the industry is directly linked with fund infusion from promoters, banks or additional investors at timely intervals.

In a market which is growing steadily, capacity will always be the king. However, capacity can only be added if there are adequate finances readily available.

Challenges Before SpiceJet

On the other hand, the far older budget airline SpiceJet has not only hit turbulent times but also managed to get entangled in several legal issues with lessors and bankers. Apart from that, unpaid dues of vendors and shrinking market share have also dealt a blow to the carrier. The airline has been bleeding for more than five years now.

Despite raising funds with plans to expand its fleet, SpiceJet continues to face challenges. Stiff competition and operational issues plague the airline.  

Recent news agency reports claim SpiceJet's chairman Ajay Singh may be mulling shedding his stake in the airline. 

Is There Space for A New Large Airline?

Sources said that the Civil Aviation Ministry has received at least two more applications for scheduled carrier licenses.

Traditionally, big markets such as the US and China have an average of 2 to 4 airlines with dominant market share. The rest of the market comprises small operators operating limited flights in certain regional pockets.

Experts feel that with an ever-increasing number of passengers – domestic and international – the Indian market is bound to boom. Recently, Air India and Vistara announced dates for their merger process. Air India Express and Air Asia’s merger is also underway.

However, Indigo continues to dominate the air space for commercial travellers. Currently with Indigo and Vistara-Air India primarily driving the Indian aviation space (See The Secretariat's earlier published analysis on the issue by clicking here), the question arises - is there scope for more? 

The Indian aviation industry recorded its highest-ever domestic passenger traffic during the first half of the calendar year.

DGCA data revealed that Between January and June 2024, India's airlines carried 79.35 million passengers. This marked an increase of over 4 per cent over the corresponding period of the previous year.

Before this, the highest-ever passenger traffic for a half-year period was recorded in 2023, when 76.09 million passengers travelled on domestic airlines. As per an IATA estimate, by 2030 this number would be around 500 million.

With the fast increasing number of passengers travelling by air, the current number of operators may not be enough to service them, feel some.

“In my view, there is a great future for any Indian airline that has a steely resolve and deep pockets. Soon we may have a few more of them coming up in a big way,” aviation analyst Harsh Vardhan pointed out.

“I don’t agree with the conventional view that the airline industry cannot make money. India’s domestic market has huge potential, and this is evident from the increasing number of both domestic and outbound international travellers. There is space for new airlines over and above the existing ones,” added U K Bose.  

The question that arises: will Akasa Air be the one to break the duopoly by grabbing other smaller rivals' market share or will the two big ones manage to protect their turf?