NEW DELHI: Air India will nearly double the premium cabins on its legacy wide-body aircraft that are being sent for retrofitting starting this year and is also developing an all-new first class for the Maharaja’s flagship Airbus A350, which will be rolled out in the next 2-3 years. Given the post-Covid trend of premiumization, with an increasing number of passengers opting for business and premium economy, the airline has seen its front-end revenue grow by 2.3 times after being taken over by the Tatas in January 2022—compared to 1.6 times in economy, according to AI Chief Commercial Officer Nipun Aggarwal. The revamp on several fronts at AI is happening amid the sharp pressure on costs and profitability that the depreciating rupee is putting on Indian carriers.
Aggarwal was Senior VP at Tata Sons when the salt-to-satellite conglomerate acquired AI and then entrusted him with the responsibility of commercially turning around the group’s airline business. Instrumental in AI’s record firm order for 570 aircraft placed since February 2023, he said: “Pre-AI takeover, Tata Group’s presence in aviation was suboptimal. The market share of our JVs, erstwhile Vistara and AirAsia India, was in low single digits with a combined fleet of 70 aircraft. AI was a once-in-a-lifetime opportunity for us to scale up the business and become viable.”
“We have added 92 aircraft since the takeover, and many grounded (planes of AI) are flying again. Vistara reached a fleet of 70 aircraft in under a decade. The combined fleet of full-service AI (Vistara merged into it) and budget AI Express (AirAsia India merged into it) is now at 300. Revenue has grown over 10 times from $1 billion in FY 2020; routes and flights have already been more than doubled. There is a meaningful and material aircraft order for the group now,” he added.
With India being the fastest-growing aviation market globally and foreign airlines accounting for almost 80% of the long-haul traffic via their hubs abroad, AI is working to strengthen its hubs in Delhi, Mumbai, and Bengaluru, with AI Express working in tandem to provide the feed for wide-bodies going to distant corners of the globe. Several domestic and nearby international sectors with no significant demand for premium-class travel once served by AI are now flown by AI Express through route rationalization. By the end of next calendar year, AI and AI Express will have about 120 narrow-body planes each, and the three hubs will act as the hub-and-spokes for transfer traffic.
“Foreign airlines account for 80% of the long-haul traffic of about 2.6 crore passengers annually (and growing) to and from India. Of the long-haul travelers, 24% go nonstop, and the rest one-stop. And of those going one-stop, only 15% take their connection in India (like a Nagpur-New York passenger going via Mumbai). Similarly, a huge, almost six times larger, traffic overflies India between the west and the east & Australia via the hubs near us. Through connecting flight timings, we will increase our share in all these areas, including international-to-international transfers, which will be doubled in three years,” Aggarwal said. While small in percentage, long-haul travelers account for a lion’s share of the Maharaja’s revenue. The AI loyalty program will soon cover AI Express flights too.
While the entire narrow-body fleet will be retrofitted this calendar year, the wide-body program will begin this year with the legacy Boeing 787s, and in 2026 the B777s will see their much-awaited cabin upgrade. He admitted that the legacy aircraft have challenges, given the frequent delays in the North America and Europe nonstops. For now, AI has reduced the utilization of its legacy long-haul planes to give a greater buffer in case an aircraft gets grounded for some reason and then be able to find an alternate plane.
Premiumization is the key word for the new planes joining the AI fleet and the old ones being retrofitted. Domestic market leader IndiGo has also started a semi-business class, which it calls Stretch, on some of its narrow bodies. “Premium segment has been a big focus for AI as it’s a huge opportunity. While the back-end (economy) revenue growth has been 1.6 times (since Tata takeover of AI), the front end has grown 2.3 times. A majority of AI aircraft will have three classes—economy, premium economy, and business. On some of our A350-1000, we will have a first class that is being developed,” he said.
On the falling rupee, Aggarwal said: “That puts pressure on our profitability and cost structure, with most expenses being incurred in dollars. AI has some hedge as we fly internationally more than others. We charge in forex and are able to pass on the impact for about half the ticket sales that happen abroad.”
Will the falling rupee mean higher fares? “Demand is price-sensitive. Raising fares impacts traffic, and so we have to strike a balance. If airlines had that kind of pricing power, the industry profitability would not be like it is.”
