Demand for air travel rose 23% last year in India, more than double demand growth in China. The growth resulted from more routes and more flights. The latter is expected to continue in 2017, and that is good news for Boeing Co. (NYSE: BA).
In mid-January Boeing announced a $22 billion order from India’s low-cost carrier SpiceJet. The order includes 100 new 737 MAX jets and renegotiated terms for 55 previous orders. SpiceJet also acquired an option on another 50 Boeing planes, including 777s and 787 wide-body jets. This was a big win for Boeing.
On Saturday, the country’s aviation ministry said that it would make 43 currently unused airports operational again in 2017. That means that in addition to more flights, there are now going to be more routes to fly, and that is additional good news for Boeing and arch-rival Airbus.
India’s civil aviation minister said:
The main idea behind operationalizing these 43 unused airports is to improve the connectivity to the hinterland. Proposals have already been received from 11 bidders who will put these airports into commercial operations.
Airbus has held a significant lead over Boeing in sales to Indian airlines. The European maker has bested Boeing in orders from India’s leading low-cost carrier, IndiGo, and another rival, GoAir. The former placed an order for 410 Airbus A320neos and has already received 100 A320ceos and 14 of the newer aircraft out of a total order of 530. GoAir has ordered 159 A320s, 155 of the A320neo and the rest A320ceos.
Airbus reportedly competed hard for the SpiceJet order, and it is likely that Boeing had to offer a significant discount to the list price in order to win the deal. Depending on the size of the order and the customer’s history, discounts typically range from 40% to 60%.
Fares for flights to India’s reopened airports have been set to cost no more than 2,500 rupees (about $37) for a one-hour flight, according to a report in the Times of India. The government plans to award routes for the airlines within the next three weeks and expects flights to begin in one to six months.