Budget Airline Akasa Air Places $20 Billion Order for 150 Boeing Planes: Impacts on Aviation, Manufacturing, and Stock Markets
Source and Citation: Article published by ET Bureau in Economic Times on January 19, 2024.
Analysis for a Layman
Akasa Air, a burgeoning Indian budget airline founded in 2021, has disclosed a monumental order for 150 new Boeing 737 MAX aircraft, valued at around $20 billion. This substantial acquisition is set to elevate Akasa’s current fleet of 22 planes to an impressive 172 planes between 2027 and 2032. The order comprises a mix of the 737 MAX 8 model, accommodating up to 210 passengers, and the larger 737 MAX 10 model, with a capacity of up to 230.
CEO Vinay Dube emphasizes that these state-of-the-art and fuel-efficient planes will empower Akasa to introduce new domestic and international routes at affordable fares, with the ambitious goal of becoming one of the world’s top 30 largest airlines within this decade. This move solidifies Akasa’s alliance with Boeing, establishing them as a key customer for the manufacturing giant’s fastest-selling plane models, amid robust growth forecasts for the Indian civil aviation sector.
Impact on Retail Investors
This substantial aircraft order reflects Akasa management’s confidence in the lucrative growth potential of Indian aviation, possibly backed by further commitment from Akasa’s main early backers – the family of the late stock investor Rakesh Jhunjhunwala.
Retail investors should interpret this as a long-term positive signal for Akasa Air stock once it goes public, as well as for aviation industry stocks in general. The expansive plans suggest robust demand forecasts and an attempt to capture more domestic and international routes from dominant players like IndiGo and Air India. Investors are advised to closely monitor Akasa’s execution of these growth plans, including their route network development, fleet utilization rates, and operating metrics like yields, load factors, and cost per available seat kilometer.
Impact on Industries
This $20 billion order stands as a significant boon for aircraft manufacturer Boeing, solidifying Akasa as a pivotal customer for its fast-selling 737 MAX models. It supports Boeing’s plans to escalate production across its 737, 787, and 777 model lines, fostering job creation across Boeing’s manufacturing facilities and supply chain partners, thereby bolstering local aerospace clusters in the U.S.
For Indian aviation, this order solidifies strong growth prospects, enticing new players to enter the market while expanding fleet sizes. Demand for domestic and underserved international routes from India is surging, signaling intensified competition for incumbent airlines like IndiGo, SpiceJet, Vistara, and Air India Express, likely leading to more favorable airfares for consumers.
The increase in jet fuel consumption will contribute to growth in India’s downstream oil and gas value chain, while operational roles such as pilots, crew, ground handling, and maintenance will witness increased hiring activity. Airports in potential new destinations tapped by Akasa can anticipate an initial surge in passenger traffic and revenue.
Long-Term Benefits & Negatives
Over the period 2027-2032, Akasa’s induction of 150 latest, fuel-efficient Boeing 737 MAX planes significantly enhances its competitiveness. This enables cost-efficient network expansion domestically to tier-2/3 cities and internationally, especially on routes with large migrant diasporas.
Consumers stand to benefit from lower fares due to heightened competition. Akasa’s anticipated fleet of 45-50 planes operational by 2027 alone is poised to lead to sustained airfare drops throughout the decade. This more affordable air travel is supportive of trade, tourism growth, and job creation in sectors like hospitality and retail.
However, potential negatives stem from execution risks, particularly for a fledgling airline. Akasa must develop operational expertise in fleet planning, inventory management, and route launches, with aggressive hiring and training programs for roles such as pilots, crew, and engineers. Any missteps here could result in inefficiencies like poor aircraft utilization rates and low load factors, impeding cost competitiveness and placing undue short-term profitability pressure.
Short-Term Benefits & Negatives
In the short term, Akasa’s induction of around 20 planes yearly over 2027-2032 facilitates gradual capacity expansion. This provides time to develop operational skills and vendor partnerships, supported by the substantial 150-plane order size and Boeing’s advisory support.
Consumers benefit from new affordable routes and promotions to fill additional capacity. Connectivity improves for India’s smaller cities with migration links to Gulf countries, Southeast Asia, and domestic hubs like metros.
By commanding such scale in Boeing’s order pipeline, Akasa likely negotiated favorable concessions, enhancing their fleet economics. This aids in managing the high volatility in crude prices and forex swings, reducing the financial risks associated with aggressive expansion.
Potential negatives in the short term include execution stumbles leading to initially under-utilized capacity. The steep jump from Akasa’s current size necessitates experienced senior management hiring, especially for international routes requiring regulatory clearances and airport slot negotiations. Competitors may react by dropping fares if Akasa misjudges demand on new routes.
Companies Impacted by Akasa Air’s Boeing Order
Indian Companies Likely to Gain:
1. SpiceJet (SPICEJET): Akasa’s expansion may force SpiceJet to optimize pricing and routes to retain market share. This could benefit SpiceJet by driving efficiency and potentially leading to market share gains.
2. Indigo (INDIGO): While intense competition remains, Akasa’s focus on single-class economy may push IndiGo to refine its lower-cost offerings, improving market competitiveness.
3. Airport Operators (AHLUWALIA, GMRINFRA): Increased air traffic due to Akasa’s expansion will benefit airport operators in terms of passenger fees, ground handling services, and potential expansion opportunities.
4. Indian Aerospace Sector (HINDUAERO, SAIR, BEL): With a large order book, Akasa will require maintenance, repair, and overhaul (MRO) services, potentially benefiting Indian aerospace companies involved in servicing Boeing aircraft.
5. Indian Tourism Industry (IHCL, DEEPAK): Increased domestic and potentially international travel by Akasa passengers could boost the Indian tourism industry, benefitting hotels, travel agencies, and related businesses.
Indian Companies Likely to Lose:
1. Smaller Regional Airlines (TruJet, AirAsia India): Akasa’s entry into regional routes could intensify competition for smaller airlines, potentially impacting their market share and profitability.
2. Business Class Airlines (Vistara, Air India): Increased focus on budget travel by Akasa might marginally impact demand for business class travel on some routes.
3. Air India’s Short-term Growth: Akasa’s competitive presence may slow down Air India’s rapid expansion plans in the budget segment, requiring them to refine their strategy further.
Global Companies Likely to Gain:
1. Boeing (BA): The $20 billion order strengthens Boeing’s presence in the Indian market and secures jobs and production for years to come.
2. Engine Manufacturers (GE Aviation, CFM International): The order includes engines from either GE or CFM, boosting their production and revenue.
3. Aircraft Parts Suppliers (Honeywell, United Technologies): Increased demand for Boeing 737 MAX jets will benefit various aircraft parts suppliers globally.
4. Airport Service Providers (Swissport, dnata): Increased air traffic at Indian airports will benefit global airport service providers operating in the country.
Global Companies Likely to Lose:
1. Airbus (AIR): This order further solidifies Boeing’s position in the Indian market, making it harder for Airbus to gain significant market share in the near future.
2. Smaller Aircraft Manufacturers (Bombardier, Embraer): Increased dominance of Boeing 737 MAX in the single-aisle market may make it harder for smaller aircraft manufacturers to compete.
3. Airlines in Competitive Markets: Akasa’s international expansion in the future could intensify competition on certain routes, impacting airlines already operating those routes.
Market Sentiment:
- Akasa’s order and expansion plans are likely to be viewed positively by investors in the Indian aviation and related sectors, potentially leading to increased stock prices.
- Conversely, companies facing increased competition or slower growth may see their stock prices dip slightly.
- Global aviation and aerospace companies involved in servicing Boeing 737 MAX or supplying parts are likely to see positive market sentiment.
Disclaimer: This analysis is based on publicly available information and should not be considered financial advice. It is recommended to consult a financial advisor before making any investment decisions.