The winter flight schedule for airlines in India began on October 30, with companies bracing for the impact of supply chain issues due to shortages of parts, engines and aircraft.
“For any industry, capacity deployment is a key parameter for fixed cost absorption. Supply chain issues for aircraft resulting in their unavailability for flying will lead to under-absorption of capacity, impacting revenues as we are in the middle of the winter/festive travel season,” said Suprio Banerjee, Vice President and Sector. head at ICRA.
There are visible problems faced by Indian airlines due to supply chain issues. For IndiGo, the country’s largest airline with a 58% market share, over 35 planes or more than 12% of its fleet were grounded for at least seven days, a Mint analysis of Flightradar24 data showed. The problem is not unique to IndiGo and is more severe for airlines like GoFirst, which has around 8% market share and a fleet size of 59 aircraft. An analysis of Mint data showed that more than 25 aircraft, or nearly 47% of its fleet, were grounded for at least seven days. “Non-availability of spare engines and parts is the primary issue that has put most of these IndiGo, GoFirst aircraft out of service. It is not that replacement engines are not supplied at all. The pace of deliveries has been severely affected first by the global covid lockdowns impacting production lines and then by the slowdown due to the Ukraine war,” said an industry expert.
Globally, airlines are facing both supply chain and non-supply chain challenges, and challenges beyond the supply chain, particularly in Europe and North America, are labor-related, said Kapil Kaul, managing director and director of CAPA India. “In India, especially in the second half of FY23, there will be an impact due to supply chain issues as aircraft are grounded due to engine shortages and a significant slowdown in new deliveries, which impacts all airlines,” Kaul said. However, the impact of new delivery delays may bring some stability in demand and supply, which in the current adverse cost environment may be positive in the short term, especially in the next 6-9 months,” he added.
Air India, Vistara, IndiGo and SpiceJet have decided to lease aircraft to meet short- to medium-term capacity needs. While IndiGo is adding three wide-body B777s on lease with crew to meet the capacity requirement on the India-Istanbul route, Air India has made a 15-month plan to receive 30 aircraft on lease. IndiGo said the airline industry continues to face significant supply chain disruptions. “We are actively working with our OEM (Original Equipment Manufacturer) partners on mitigation measures that should ensure the continuity of our network and operations. As we are working on various cost-effective countermeasures with our OEM partners, we are trying to minimize the adverse economic impact arising from this global disruption,” an IndiGo spokesperson said. levers to offset the headwinds of global supply chain disruption. Some of the measures being evaluated include slowing re-delivery through lease extensions, exploring aircraft re-entry into the fleet and evaluating options for manned aircraft leases within regulatory guidelines.”
Vistara recently decided to lease a wide-body B787 to meet international capacity needs due to delays in the delivery of the new B787. However, it canceled scheduled flights to Frankfurt because the leased planes had not yet been delivered. SpiceJet also received regulatory approval to lease five Boeing 737 Max aircraft for up to six months. Leasing an aircraft is a short-term solution, but it is difficult because it requires business negotiations and technical inspections, and the configuration of the interiors is certainly different from the one operating. There are often problems during aircraft rotation because you can get 288 seats one day and 305 seats the next, and engine support also needs to be considered, Air India CEO Campbell Wilson said recently. Airlines face two main challenges: volatile demand and fluctuating jet fuel prices. Moreover, as components are imported, the depreciation of the rupee leads to increased costs, analysts said. “However, airlines will clearly focus on measures including leasing coupled with better coordination with OEMs for supply of such spares/components to minimize aircraft stranding due to supply chain issues,” ICRA’s Banerjee said.
Analysts and industry experts believe that the coming winter season will impact the aviation ecosystem due to shortage of parts and aircraft.
“Given that passenger load factor (PLF) levels for domestic airlines are typically higher in Q3 than Q2 and with the onset of holidays/holidays, lower capacity availability in such a scenario will be another challenge for the industry which is already under pressure due to increased ATF prices and rupee depreciation,” Banerjee said.
“Airlines will be better off maintaining capacity at pre-covid levels at least through this winter schedule,” Kaul said, adding that the next 6-9 months are likely to be turbulent due to fuel, high interest rates, high inflation and ongoing geopolitical tensions, so caution is critical.