Domestic carriers look to bridge the Gulf

With Jet Airways planning to start its operations to six West Asian cities from January 2008 and many low cost carriers (LCCs) eyeing the sector, airlines and experts think that the Gulf sector has a lot of action coming up.

Despite adequate capacity, the India-Gulf market has been growing at a steady pace. Traffic from India to the Gulf increased by 30 per cent last year, while international traffic growth average was 15 per cent.

Moreover, airlines have been enjoying almost 80 per cent seat occupancy in this sector. Currently, there are around 40,000 seats on offer to India from the Gulf. Industry estimates said there would be demand for 25 per cent more (around 10,000 more seats) by next year.

"The India-Gulf sector is slated to see a rise of around 28-30 per cent per year," said Kapil Kaul, CEO, Centre for Asia Pacific Aviation (CAPA).

Ready for takeoff

Currently, national carriers Air India and Indian and the national LCC Air India Express are the only carriers, which have operations to the Gulf. However, the Union civil aviation ministry is mulling to unlock this monopoly next year making way for other carriers to operate in the sector.

Jet Airways, which will be the first to come to this route, has plans of operating to the around six destinations in the Gulf, including Dubai, Abu Dhabi, Doha, Muscat and Bahrain.

Air Deccan, Spicejet and Kingfisher are also gunning for operations to the Gulf.

Gulf carriers too are looking at expanding. While Etihad plans to increase its operations from the current 28 flights per week by adding flights to Kochi and Thiruvanathapuram. Also LCCs such as Sama Airways (Saudi Arabia) are planning to start operations in India.

Among international carriers, airlines from the Gulf constitute the largest chunk -20 per cent-of India's international traffic.

Sticky revenues

Though experts expect healthy margins of around 15-20 per cent for carriers heading for the Gulf, the advent of so many low cost carriers could affect revenues to an extent.

Take the instance of the national carriers. Air India's operations in the Gulf used to account for around 25 per cent of its revenues. But after the introduction of Air India Express in April 2005, the percentage of revenues from this sector decreased to around 18 per cent in 2006-07. Gulf operations account for 70 per cent of AI Express' revenues.

The LCCs offer fares around 25 per cent lower than full service carriers. For instance, an Air Arabia return ticket from Mumbai to Kuwait comes to around Rs 15,000 which is more than 25 per cent of the average fare of Rs 21,000 fare charges by full service carriers.

Does that mean there is a price war in the offing? No, say industry experts and airline officials.

"There is a huge appetite for capacity in these routes which will absorb both LCCs and full service carriers. Also, travellers to the Gulf do not consist of only migrant labourers. There is also the business and leisure traveller," said Kaul.

"Also, LCC fares have to settle where they are currently 25 per cent lower than full service fares, if the carriers want significant yields from this sector," adds an industry expert.