In another year, west Asian carriers will control more of the ex-India aviation market than the National Aviation Company of India Ltd, says Surajeet Das Gupta
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Air India has always played the gracious Maharajah, welcoming travellers aboard to their home away from home. Under Aviation Minister Praful Patel, who is currently tasked with reviving the ailing Nacil (as Air India is now called), the graciousness has been taken to another level, a level that threatens Nacil’s very existence. When Patel first became the aviation minister in 2004, to cite one example, west Asian airlines like Emirates, Etihad and even the tiny Air Arabia, had an ex-India capacity of around 2.5 million seats — this is today up three times, to around 7.5 million seats. Since any investment banker will tell you the value of an airline depends upon, apart from its aircraft and market share, its bilateral rights, Patel has knocked the bottom out of the very airline he’s now supposed to save.
According to aviation consulting company Centre for Asia Pacific Aviation (CAPA), the market share of west Asian airlines in the ex-India market has shot up to 26.68 per cent in February 2009. With Air India’s market share a lower 23.55 per cent, this makes India one of the few markets in the world where the national carrier has a lower share of the pie. Add to this, if you like, the share of private players such as Kingfisher and Jet Airways, and the capacity of Indian carriers becomes a more respectable 36.48 per cent. But given the speed at which west Asian carriers are expanding, according to experts, it will take around a year for them to have a greater market share than all Indian carriers.
Within the overall west Asian pie, Emirates has seen its capacity rise four-fold, from 12,400 seats per week in 2004 to 48,600 in 2008; Etihad Airways from 1,600 to 8,500, even tiny Air Arabia’s capacity (see chart) is more than that of British Airways and is quickly closing in on Lufthansa. While Lufthansa has a market share of 3.65 per cent in the ex-India market, that for Air Arabia is already 2.96 per cent; that for Qatar Airways is 2.88 per cent (British Airways is 2.81 per cent), Oman Air 2.71 per cent, Saudi Arabian Airlines 2.13 per cent, and so on.
Patel’s generosity, of course, goes beyond just allowing foreign airlines more bilateral rights. He also allowed them to fly directly to various cities within the country. So Emirates, for instance, has over 45 flights to around 10 cities in India. Singapore Airlines flies to as many as eleven cities across the country. These cities account for 70 to 80 per cent of the total international traffic going out from India. What makes it worse, around 60 per cent of those who fly to west Asia or Singapore, fly on to other destinations, very often the US. So Nacil or other Indian carriers are losing out on an opportunity to fly passengers not just to west Asia or to Singapore, they’re losing lucrative long-distance passengers. In many cases, foreign airlines keep the fares on the India leg cheap to attract long-distance passengers.
Of the top destinations flown out of India, Mumbai-Dubai has become the most important — there are around 19,000 seats on various airlines flying out of Mumbai to Dubai every week. Mumbai-London comes next with around 14,000 and Delhi-Dubai third with 13,000 seats. Hardly surprising then, that the advantage is fast shifting to west Asian carriers.
Of course, Nacil also gets to fly to places like Singapore or the UAE, but it doesn’t get to fly to any other destination — so, the number of flights that it can push in these destinations is limited. So the open skies policy is more beneficial to west Asian carriers than it is to Indian carriers. Secondly by allowing these carriers to fly directly to various Indian cities, this prevents Indian carriers from offering a hub-and-spoke facility to be able to gain from their strength in the domestic market. So, for instance, if Singapore Airlines flies from Chandigarh directly, Air India no longer has the advantage to be able to fly passengers from Chandigarh to Delhi on its domestic flights and book them straight to Singapore on its foreign flights. The fact that foreign airlines can fly to major destinations directly also obviates the need for them to tie up with domestic carriers.
Indian carriers also point out that they get hit in other ways as well. High Indian taxes ensure fuel costs are higher, and this adds to the pressure of costs that Indian carriers face vis-à-vis their competitors in west Asia and Singapore.
More worrying, from Nacil’s point of view, west Asian carriers are going through a massive expansion spree and the open-skies policy will only increase their dominance in the Indian market. In the next 18 months, west Asian carriers will take delivery of over 200 aircraft, which is around a fifth of what they have ordered. Unlike other carriers, there is no news so far of them putting off these purchases.
Many would argue that these are the consequences of open competition. After all, there is open competition in other markets as well. And eventually, lower fares benefit the customer. That’s obviously correct but it remains true that other countries offer significant protection to their local carriers — and if others play the game, should India be any different? In Germany, for instance, Lufthansa is successfully lobbying with the government to limit the expansion of west Asian carriers into Germany.
In an interview in an international newspaper, Thierry Antinori, executive vice-president of marketing and sales at Lufthansa, had pointed out that there was an ‘imbalance’ in competition because his airline could only have ‘limited’ market access because of the UAE’s smaller size while west Asian airlines were free to serve several German routes. He complained that west Asian carriers had four times more flights than Lufthansa, and traffic rights are ‘not being balanced’ and the German carrier was facing ‘very tough competition’, Other carriers like Air Canada, Air New Zealand have also attacked the big three west Asian carriers — Emirates,Etihad and Qatar Airways — and have been against allowing them more services from their countries or encouraging them to take passengers onwards to other destinations across the world from west Asia. In Hong Kong, Cathay Pacific which was finding it difficult to compete with other Asian airlines had about 32 per cent of the capacity from the city some year ago — it now has over 48 per cent of the market, primarily through a protective bilateral regime followed by the state.
Top aviation ministry officials in India say that they have decided not to give any more bilaterals for the time being. That is a good step, but it may be too late for Nacil. Any plan to revive Nacil has to take into account this reality.
