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October 1, 2021

Air India opens for bids, but investment in the struggling airline could prove risky

The service-led operations of Air India do not seem to play well to current Indian consumer preferences.

By Globaldata Travel and Tourism

As the bidding war for Air India hots up, there is evidence to suggest the Indian travel market is more interested in value for money rather than preserving its full-service legacy carrier. GlobalData research indicates that the Indian aviation market has a growing preference for low-cost carriers (LCCs). According to a Q3 2021 GlobalData consumer survey, 56% of Indian respondents said affordability was the main factor that influences where and whether they go on holiday. Typically, full-service carriers (FSCs) like Air India are service- rather than cost-led. This would not seem to play well to current Indian consumer preferences.

Demand for low-cost airlines surpasses full-service carriers

Demand for low-cost airlines in India has soared. According to GlobalData’s airlines database, demand for LCCs surpassed that for FSCs in 2013. This followed ten years of substantial growth spurred by the development of household names such as SpiceJet, Go First (formerly GoAir) and IndiGo. As of 2019, budget airlines in India carried 51% of all passengers compared to just 38% in 2009. The demise of FSCs, such as Kingfisher Airlines and Jet Airways, quickly followed between 2012 and 2019.

With the financial hardship brought about by the pandemic, Indian consumers are concerned about their financial situations, resulting in cutbacks in travel budgets and holidays. In GlobalData’s Q3 Consumer survey, 43% of Indian respondents expressed serious concern about their financial situation – 13% higher than the global average. Therefore, a preference for LCCs over FSCs is likely to grow further, with Indian travellers looking to get the best value for money when they travel.

It could be argued that there is a lack of FSC airlines within India, considering it has a growing middle-class population and developing international business relations. However, GlobalData projections show business travel will not recover until at least 2025. In addition, the Jet Airways reboot scheduled for 2022 adds an additional competitor, creating an even more competitive landscape for Air India.

Challenges await the future owners

Significant challenges lie ahead for Air India’s next potential owner. Encouragingly, the two main bidders are allegedly Tata and SpiceJet, which both have a wealth of experience in the budget air industry and will be taking on a prestigious Indian brand. Should either of these businesses be successful, Air India is likely to experience a complete overhaul in its operations and product proposition. Nevertheless, whoever takes on the airline is taking a risk.

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