US airlines look to restrict competitors amid banned from Russian airspace

In recent years, tensions between the United States and Russia have led to a series of tit-for-tat sanctions and restrictions. One area where this has had a significant impact is in the airline industry, with US airlines now facing a ban from Russian airspace. As a result, some US airlines are now looking to restrict their competitors in response.

The situation began in 2014 when Russia annexed Crimea from Ukraine. The US and other Western countries responded with sanctions against Russia, including restrictions on the country's airline industry. In response, Russia banned certain US airlines from its airspace, including Delta Air Lines, United Airlines, and American Airlines.

Effectively banned from the polar routes that save time and fuel between the United States and an array of destinations on the other side of the world, U.S. carriers say they are being forced into an aeronautical version of Twister to get passengers where they want to go without taking undue risks.

Because of the war in Ukraine, U.S. carriers have to take the long way on flights to and from Asia, giving an advantage to foreign rivals flying the same routes.

The ban has had a significant impact on these airlines' operations. They have had to reroute flights, resulting in longer flight times and increased costs. They have also lost out on potential revenue from passengers who want to travel to Russia or connect through Russian airports.

In response to the ban, some US airlines are now looking to restrict their competitors.

However, critics argue that this is just an attempt by Delta to limit competition and protect its market share. They argue that the US airline industry should be focused on improving its own competitiveness, rather than trying to restrict others.

The situation is complex, and there are valid arguments on both sides. On one hand, US airlines have been unfairly disadvantaged by the Russian airspace ban, and it is understandable that they would want to take action to protect their own interests. On the other hand, restricting competition is not the best way to improve the industry as a whole.

Ultimately, what is needed is a diplomatic solution to the tensions between the US and Russia. Until that happens, the airline industry will continue to suffer. Continued access to the shorter and more fuel-efficient routes that Russian airspace provides is giving carriers like Air India, Emirates and China Eastern Airlines an unfair advantage.

U.S. airlines for years had access to Russian airspace through a series of agreements with Moscow. In exchange for that access, they — and other foreign airlines — paid fees to the Russian government for air traffic control support that amounted to hundreds of millions of dollars per year, according to an airline official and an industry advocate.

But after Russia’s invasion of Ukraine last year prompted government officials in the United States, Britain, Canada and Europe to ban Russian aircraft from flying over their airspace, President Vladimir V. Putin of Russia immediately prohibited the United States and other supporters of Ukraine, including Canada and much of Europe, from flying through his skies.

The London headquartered-Menzies Aviation on March 9 said it has tied-up with IT major Wipro to "transform" its air cargo management services.

The aviation company will use a new product, developed by Wipro, to "improve business efficiencies, employee experience, and customer service through increased automation", a release stated.

Wipro’s cargo handling product was designed using cloud-native technologies, it added, further noting that the product will result in increased transparency and real-time-tracking.

Menzies will be rolling out the Wipro product to five air cargo locations — Bucharest in Romania; Wellington, Christchurch, and Auckland in New Zealand; and Macau in China — by the end of 2023, with further plans to fully implement it across its global network by the end of 2024.

"Following a rigorous tender process for a new warehouse management system, we are excited to announce our partnership with Wipro to drive forward our global technology transformation and ambitious growth strategy," Robert Fordree, Executive Vice President Cargo, Menzies Aviation, said.

"Our teams will be able to utilise an operating system that is more aligned to the look and feel of everyday apps, and our customers will benefit from increased transparency of cargo status, use of automation to speed up processes and improved safety and security procedures,” Fordree added.

According to Omkar Nisal, Managing Director UK & Ireland, Wipro, the collaboration enables them to leverage the company’s extensive technological capabilities, along with Menzies’ vast cargo-handling experience, to "deliver a product that will help revolutionize the air-cargo industry".

Indian carriers will operate a total of 22,907 weekly domestic flights during the summer schedule starting from March 26. The number of flights to be operated is 4.4 per cent higher compared to 21,941 weekly flights operated in the winter schedule, according to aviation regulator DGCA. The summer schedule is from March 26 till October 28. As many as 11 airlines will be operating domestic services, with maximum weekly flights by IndiGo at 11,465. In the 2022 summer schedule, the airline's number of flights is 10,085 flights. Among the 11 airlines, Alliance Air, Air Asia, SpiceJet and Vistara will be operating fewer flights in the upcoming summer schedule compared to the 2022 winter schedule, which is from October 28, 2022 to March 25, 2023. SpiceJet will be flying only 2,240 weekly flights in the summer schedule. This is nearly 30 per cent lower than 3,193 weekly flights in the winter schedule. In a release on Friday, the Directorate General of Civil Aviation (DGCA) said 22,907 departures per week have been finalised to/from 110 airports for the summer schedule compared to 21,941 departures per week from 106 airports in the winter schedule 2022. "Out of these 110 airports, Jeypore, Cooch Behar, Hollongi, Jamshedpur, Pakyong and Mopa (Goa) are the new airports proposed by the scheduled airlines whereas operations from Ziro and Hindon airport are not proposed in the summer schedule 2023," the release said. Tata Group-owned Air India will operate 2,178 weekly flights, which will be 9.45 per cent more than 1,990 flights in the winter schedule. Its group airlines -- Vistara and AirAsia -- will be flying fewer flights compared to the winter schedule. While Vistara will be operating 1,856 weekly flights which will be 4.38 per cent lower as against the winter schedule number of 1,941, Air Asia will be flying a marginally lesser number of flights at 1,456. In the winter schedule, the number of weekly flights of Air Asia was at 1,462. No-frills carrier Go Air, now rebranded as Go First, will be operating 10.65 per cent more weekly flights at 1,538 in the summer schedule. Akasa Air will operate 751 weekly flights in the summer schedule. In the summer schedule, Alliance Air will be flying 14 per cent less weekly flights at 887. According to the release, Star Air and Fly Big will be operating a higher number of weekly flights in the summer schedule at 234 and 220, respectively. IndiaOne will be the new operator in the 2023 summer schedule and it will operate 82 weekly flights. After being significantly impacted by the coronavirus pandemic, the country's aviation sector is on a strong recovery path and domestic air traffic has been on the rise in recent times.

Air India has offered a voluntary retirement scheme (VRS) to its staff, excluding pilots, cabin crew, and security staff. This is the second such offer since the takeover of the airline by the Tata Group in January 2022 and will remain in force till April 30.

The VRS offer will be available for permanent general cadre officers who have attained the age of 40 years or above and completed a minimum of five years of continuous service at the airline. Clerical and unskilled categories of employees who have completed a minimum of five years of continuous service at Air India will also be eligible to opt for VRS.

A communication, sent out to staff by Chief Human Resources officer S.D. Tripathi on Friday, March 17 said: "We had launched the first phase of VR in June 2022 and subsequently there has been a request from employees for extending the additional benefit of voluntary retirement to other permanent employees as well. In response to this, we are announcing phase II of voluntary retirement."

"The employees who apply for voluntary retirement from 17th March 2023 to 30th April 2023 will also be provided with an ex-gratia amount as a one-time benefit. Eligible employees who apply up to 31st March 2023 will receive INR 1 lakh over and above the ex-gratia amount," it added.

Air India CEO Campbell Wilson, in an internal communication, also informed about the voluntary retirement offer. He said that following last year's provision of voluntary retirement of permanent cabin crew, clerical and unskilled staff aged over 40, "many of us have asked whether there will be another round and whether it would be extended to other staff categories. Today, we're launching a second phase of voluntary retirement".

Sources said that nearly 2,100 employees meet the criteria to avail of the latest voluntary retirement offer. Air India's current workforce stands at nearly 11,000, which includes flying and non-flying staff.

In June 2022, the airline announced its first phase of voluntary retirement covering cabin crew, clerical and unskilled categories. At that time, around 1,500 staff members had opted for voluntary retirement offers which were 43% of about 4,200 eligible members. Last November, the airline allowed its cabin crew who had opted for voluntary retirement to extend their tenure until January amid a shortage of cabin crew.

Recently, Air India announced a mega order to purchase 470 aircraft from Boeing and Airbus to support its growth plans. It has already announced plans to lease 36 aircraft of which two B 777-200 LR have already joined the fleet. Following the deal, Air India plans to hire over 4,200 cabin crew trainees and 900 pilots in 2023 as the airline adds new aircraft and rapidly expands its domestic and international operations.

After 69 years as a government-owned enterprise, Air India and Air India Express were welcomed back into the Tata group in January 2022. The present management at Air India is driving the five-year transformation roadmap under the aegis of Vihaan.AI to establish itself as a world-class global airline with an Indian heart. The plan is aimed at putting Air India on a path of sustained growth, profitability and market leadership.

To boost the Atmanirbhar Bharat policy in the defence sector of the nation, Defence Acquisition Council and Defence Minister Rajnath Singh have approved proposals to procure INR 70,000 crore worth of different weapon systems for the Indian defence forces. The deal includes the purchase of 60 UH Marine choppers from Hindustan Aeronautics Limited (HAL), worth INR 32,000 crore.

Out of the total proposals, Indian Navy proposals constitute more than INR 56,000 crore, which largely includes indigenous BrahMos missiles, Shakti Electronic Warfare (EW) systems, Utility Helicopters-Maritime etc.

This apart, 60 'Made in India' Utility Helicopters Marine & BrahMos supersonic cruise missiles for Indian Navy, 307 ATAGS howitzers for Indian Army, and 9 ALH Dhruv choppers for Indian Coast Guard will be bought in accordance with the approved proposals.

The council also accorded AoN for the procurement of Advance Light Helicopters (ALH) MK-III from Hindustan Aeronautics Limited (HAL) for the Indian Coast Guard. The Helicopter will be able to carry a suite of surveillance sensors which will enhance the surveillance capabilities. It will also give full night capability and Instrument Flight Rules (IFR) capability for the operations of the Indian Coast Guard, said the Ministry in its official press release.

The month has been going favourably with HAL. Interestingly, on March 10, the ministry inked a Rs 667-crore contract with HAL for 6 Domier-228 aircraft for the Indian Air Force, causing the HAL stock to surge. Earlier this month, the Union Cabinet approved the purchase of 70 HTT-40 primary trainer aircraft from HAL for Rs 6,828.36 crore.

HAL chairman and managing director CB Ananthakrishnan recently revealed that it has an order book worth Rs 84,000 crore and an order pipeline worth another Rs 50,000 crore.

HAL stock opened nearly 4% higher on Friday's early trade at Rs 2,830.

According to brokerage firm Jefferies, IndiGo, which currently enjoys a dominating position in the fast-expanding aviation market, is likely to experience difficulties in the medium term as new and established operators add capacity in the LCC (low-cost carrier) segment.

Even though decreased fuel prices might offer some short-term comfort, Jefferies predicts that this would certainly lead to earnings challenges. The firm has downgraded the stock to a "underperform" rating and lowered its target price to INR 1,615, which is a 13% decrease from the stock's current market value.

There is no chance of missing out on traffic growth because of the huge aircraft orders currently being placed in the sector. The overhang of a stake sale by a co-promoter is also a worry, according to Jefferies.

Jefferies assigns an ‘underperform’ rating to IndiGo; projects a 13% stock decline

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IndiGo co-promoter Rakesh Gangwal, who holds a 37% stake in the company, including affiliates, had announced his intention to leave the board and gradually divest his holdings over five years starting in 2022. He has already sold around 7% of his holdings in the past six months, and the ongoing periodic sales are expected to weigh on the stock, analysts say.

IndiGo's current market share is around 56%, with the company consistently trying to increase its domestic market share by focusing on on-time performance, competitive pricing, and cost-cutting strategies. Over the past decade, the competitive landscape has also worked in its favour, with full-service airlines pursuing strategies that were not in line with the expectations of price-sensitive customers.

In the past, airlines in India have focused on lower pricing to increase demand and gain market share. However, full-service airlines, such as Jet Airways and Kingfisher Airlines, lost market share and eventually failed. Meanwhile, no-frills airlines, such as Air Deccan, SpiceJet, and IndiGo, emerged as early players in the market.

Recently, after being taken over by the Tatas, Air India has announced plans for separate brands for no-frills and full-service operations. New entrant Akasa also follows a low-price strategy, while SpiceJet is eyeing a revamp, following targeted fundraising.

ALSO READ - From A350s to B777Xs, Air India finalizes the Historic 470 Aircraft deal with Airbus & Boeing

Despite the seemingly large combined market share of IndiGo and Air India, increasing competition is imminent as most players, new and old, adopt similar low-price strategies to capture market share.

ALSO READ - IndiGo reportedly in talks with both Boeing & Airbus for around 500 aircraft

Following Air India's recent large aircraft order, the industry's total order book has expanded to 1,250-1,300 planes, almost double the current fleet of approximately 700 planes.

ALSO READ - Indian carrier expected to order over 1,100 planes

This suggests that the industry may witness low to mid-teen capacity addition over the next decade, although near-term supply-chain challenges may provide some protection, the Jefferies report added.

In an extreme downside scenario, Jefferies expects the IndiGo stock to fall 35% amidst a higher-than-expected increase in competition, which is likely to result in a sharp decline in yields. Passenger volume growth is also likely to be under threat due to an urban slowdown.

"Resultant operating EBITDAR should see an EBITDAR CAGR at 41% over FY23 to FY25. We value IndiGo at 6x Mar-25E EBITDA to arrive at a profit target of INR 1,200,” it said.

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