Airbus Delays A320neo Deliveries, India's GoAir and IndiGo Stare at Uncertainty

Strategic Insights -

With air passenger traffic in India growing at more than 20%, low-fare airlines IndiGo and GoAir were expecting the timely induction of fuel-efficient Airbus A320neo planes. However, the European plane maker has informed them about potential delays in delivery due to "industrial reasons." This comes as a blow to the airlines, which had planned to expand their market share with these new planes. IndiGo, the largest and most profitable airline in India, has confirmed that it does not have clear visibility of its future A320neo delivery schedule, while GoAir has stated that it will not be impacted by the potential delays.

Key Takeaways:

  • IndiGo was supposed to receive nine Airbus A320neos by the end of FY2016, 26 A320neos by the end of FY2017, and 53 by the end of FY2018, but the delivery schedule has been delayed due to "industrial reasons" at Airbus.
  • GoAir was expecting 26 A320neos by the end of 2017, but the delay may challenge its strategic direction, especially considering the replacement of existing 19 aircraft.
  • The induction of A320neos was critical for both airlines to expand their market share, with IndiGo expecting 15% savings on fuel cost and GoAir expecting 20% savings through various fuel-saving measures.
  • Kaul, CEO of Capa Centre for Aviation, cautions that significant delays will possibly defer expansion plans and constrain the near-term business plan of IndiGo and GoAir.
  • Air India Ltd, however, is unperturbed by the delays, as it has agreed to lease 14 all-economy A320neos from Kuwait's Aviation Lease and Finance Co. with deliveries scheduled between April 2017 and 31 March 2018.
  • The delay in A320neo deliveries may impact IndiGo's plans to add 55-60 A320neos in the next three years.
  • GoAir is expected to have all its fleet of 26 new A320neos by March 2017.
  • Air India Ltd has agreed to lease 14 A320neos with deliveries scheduled between April 2017 and 31 March 2018.
  • The A320neo has been certified by both EASA and FAA.

Statistics:

  • Indian air passenger traffic is growing at more than 20%.
  • Jet fuel in India is 60% costlier than in Singapore.
  • Jet fuel prices account for more than 45-55% of an airline's revenue in India.
  • A 4% reduction in fuel costs adds around 2% to the operating margins of airlines.
  • Airlines are expecting at least 15% savings on fuel cost and this can be extended to 20% through various other fuel-saving measures on A320neos.

Sources:

  • "IndiGo says Airbus A320neo delivery delayed, eyes other options" (Business Standard, December 24, 2016)
  • "GoAir, IndiGo stare at uncertainty as Airbus delays A320neo delivery" (The Mint, December 25, 2016)
  • "Air India unfazed by Airbus' A320neo delays" (The Business Standard, December 25, 2016)
  • "Airbus says delivers 'service-ready' A320neo to customers" (Reuters, December 25, 2016)