Stiff competition: Jet, Air India may take on IndiGo's numero uno status

IndiGo, the fastest growing airline in India, could face some headwinds going forward as other airlines become more competitive. Jet Airways is expected to place an order for 50 A320 neos which will be deployed for LCC operations under its subsidiary, JetKonnect. Air India has already firmed up plans for a sort of hybrid LCC operation where it has decided to lease 19 Airbus 320 aircraft with an all-economy seating.

The LCC model is based on single configuration seating and what Air India is doing is to compete with LCCs by not only offering single class configuration on its aircraft but also by increasing the total number of economy seats available.

[caption id=“attachment_768279” align=“alignleft” width=“380”] An IndiGo aircraft. Reuters[/caption]

SpiceJet is widely expected to secure a foreign partner for itself this year whereas reports suggest that GoAir is also looking for buyers. Then, AirAsia, the ultra low cost airline from Malaysia, is likely to begin operations before the year comes to and end and another South East Asian LCC is also expected to come down to India.

No wonder then that the LCC space, where IndiGo has more than a fourth of the market, is expected to get extremely competitive in the next 1-2 years. So, the airline needs to deepen its focus on the domestic business.

Aviation consultancy CAPA said today that “With the changing market structure the carrier (IndiGo) might review its funding plan over the next 12-18 months and could explore options from strategic and financial investors to an Initial Public Offer”.

Though the airline itself has never confirmed plans to launch a public offer or shown any inclination publicly to invite suitors for financial investments, talk of an IPO was ripe in 2010 and even the following year. A story in Mint newspaper in 2010 had said IndiGo is planning to raise $500 million (Rs 2,215 crore) through an IPO and that the share sale is scheduled for the last quarter of FY11.

That story also said that ahead of the IPO, IndiGo is looking at an equity placement that could result in dilution of promoters’ stake of as much as 25 percent. Well, no IPO happened and IndiGo’s funding remains a closely guarded secret since the airline is not listed on stock exchanges.

Will it now revive plans for an IPO? CAPA also said IndiGo may look at “opportunities” in new territories by establishing cross-border joint ventures in Africa and Southeast Asia.

Again, there is no indication of what IndiGo plans to do on these matters. But just last week, Qatar Airways’ CEO Al Baqer confirmed he is in talks with IndiGo for a codeshare partnership.

“There is already an approach between the management of the two airlines. Yes, we are talking to IndiGo to see how we can strike a relationship with them. IndiGo is an airline that is not for sale. We only want to do a codeshare partnership with them. And we want to get into a situation where we work together because they are the best airline in India today,” Baqer was quoted saying. He said he was in touch with IndiGo’s co-founder Rahul Bhatia and things should work out soon. Baqer denied any plans to pick up equity in IndiGo.

IndiGo has been rumoured to be in similar codeshare talks with other airlines as well, including British Airways.

Right now, though, IndiGo needs to enhance focus on its domestic business and perhaps, as CAPA says, firm up its near term funding plans.

It remains among the fastest growing airline in the world and it would be a pity to see IndiGo beaten by the combined might of Jet-Etihad or by other LCCs who are all gearing up for a good market share fight.