New Delhi: The government plans to review agreements it has in place with other countries on the number of international flights to and from India and also go slow in granting such rights in the future, according to senior government officials and foreign airline executives who are already facing delays in receiving new approvals.
The review of such permissions, also called bilateral rights or bilaterals, is seen as a reaction to the falling share of Indian carriers on international routes and the increasing dominance of foreign airlines. In peril are the ambitions of big Indian airports to turn into aviation hubs.
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India has a so-called open skies agreement with countries such as the US that liberalized air travel. But the government negotiates with countries such as the UAE, Saudi Arabia, Singapore, Germany and the UK before granting their airlines the rights to fly to and from India.
The move to review bilaterals and go slow on granting fresh approvals, experts say, is likely to slow the plans of several international carriers, especially those from West Asia and South-East Asia that have hitherto benefited from New Delhi’s liberal approach in granting such rights. Most international airlines see India as potentially one of their strongest markets after a global economic downturn hit air travel in developed economies.
In the last four years, India’s aviation ministry has agreed to new bilateral rights for as many as 400,000 seats, taking the number of foreign flights to 706 a week from some 460 in 2005—a jump of nearly two-thirds.
While the benefits of such expansion on ticket prices are evident—it costs just Rs1,730 to fly from Tiruchirapalli in Tamil Nadu to Malaysia, including taxes—administrators point out that three in four of the new bilateral allocations made since 2005 have been cornered by foreign carriers.
This at a time when two more Indian carriers—Jet Airways (India) Ltd and Kingfisher Airlines Ltd—have joined National Aviation Co. of India Ltd-run Air India in flying to destinations such as London, Dubai, Sharjah, Hong Kong and Singapore.
Retired aviation ministry bureaucrat Sanat Kaul calls New Delhi’s liberal approach to bilaterals in recent years “too much of an overdose”. In his tenure that ran until 2000, the ministry, he says, was criticized for protecting Air India.
“Trying to protect an airline at the cost of tourism, business traffic and more employment is not feasible,” says Kaul, also a former member of the International Civil Aviation Organization, a UN agency that oversees the planning and development of air transport. “How liberal you go is another issue.”
Foreign airlines have maintained a market share of 64% even as the number of passengers flying to and from India grew to nearly 26 million in 2008 from 20 million in fiscal 2006. Air India’s share of this market declined from 27% in FY07 to 23.55% in FY09, the airline’s estimates show. Jet Airways has expanded its share to 11.27% in two years of international service and Kingfisher Airlines has 1.66%. Pointing to the strained finances at the Indian carriers—Air India, Jet Airways and Kingfisher Airlines together have debt of $8 billion (Rs38,560 crore) and make for most of $2 billion annual losses in India’s airline industry—a senior civil aviation ministry official says, “…because we are already struggling with overcapacity, we don’t want these foreign airlines to come in. We have to take (into account) the country’s interests also.” This official, who asked not to be identified since a go-slow approach to awarding bilaterals is likely to be controversial, did not give details of the review of bilaterals at the ministry.
Analysts say Indian carriers have the odds stacked against them while competing with bigger players, especially those from West Asia that are cementing their share of the market flying to smaller cities in Europe and India at inexpensive fares.
“The biggest danger to all (Indian) carriers are the Middle Eastern airlines like Emirates, Qatar and Etihad who have (vacuumed out) large portions of the UK and EU to India (traffic),” says a London-based aviation analyst, who asked that he and his employer not be identified because he is not authorized to speak with the media. “When an airline is bankrolled by an oil state, it is impossible for private enterprise to keep up.”
Sting of competition
In a May report, Centre for Asia Pacific Aviation, or Capa, too, was cautious. “It may be time to reflect on the issue of market access and to ensure that India’s carriers are able to effectively leverage the international market potential that exists. With Indian airlines suffering huge financial losses, their expansion plans are on hold, while a number of foreign carriers continue to expand aggressively into India and claim market share,” the aviation consultancy wrote.
Some foreign airlines are already feeling the pinch of the government’s slowdown in granting bilaterals. Plans by FlyDubai, a Dubai government-owned low-fare carrier, to connect Indian cities such as Lucknow, Coimbatore and Chandigarh in July, are on hold.
Another senior government official says that while FlyDubai had announced its plans to fly to these cities, it had not been allocated seats for the destinations.
The airline’s request to increase bilateral allocation for UAE carriers was also turned down, added the official, requesting anonymity. Of some 50,000 seats between India and the UAE, most have been exhausted already by Dubai government-owned Emirates that operates 163 weekly flights to India. A spokeswoman for FlyDubai said customers who booked flights are being refunded.
“FlyDubai has received approval to operate to Lucknow, Coimbatore and Chandigarh from the Indian authorities,” the spokeswoman said, but declined to comment on whether the seat allocations had been granted by the civil aviation ministry.
When Singapore Airlines recently approached the Indian aviation ministry to start services using its Airbus SAS-made jumbo A380 aircraft between Singapore and London, with a stopover at Mumbai or New Delhi, the request was turned down. “We have already given so much that we don’t need to anytime (again) soon,” said the second government official quoted earlier.
Foreign carriers in India have had a dream run in the past few years. Despite expanding its flight frequency to India four-fold since 2003, Emirates, for instance, flies its planes 70-75% full, says Orhan Abbas, the airlines vice-president for India and Nepal. Besides the metros, Emirates flies to Ahmedabad, Kochi, Hyderabad, Kozhikode and Thiruvananthapuram.
A senior executive at the India operations of Lufthansa AG, which runs 53 weekly flights to India including all-business class flights to Mumbai and Pune, thinks of his airline as among carriers that are “important pillars supporting India’s rapid globalization in recent years”. Says Axel Hilgers, Lufthansa’s director of South Asia operations, “Indian carriers alone would not have had the capacity to meet the rapid increase of international travel demand in and out of India.”
Despite its request to fly its A380s into India being turned down, Singapore Airlines, whose 58 flights together with its subsidiary, Silk Air, touch cities such as Kochi, Thiruvananthapuram, Hyderabad and Coimbatore, besides Indian metros, is hopeful. “Singapore Airlines has fully utilized the available traffic rights,” the carrier’s general manager (India), C.W. Foo, said. “In the future, Singapore Airlines does envisage (an) increase in the number of flights and would need more bilateral rights.”
With growing traffic from India, Singapore and Dubai airports have become the biggest hubs for Indian travellers to take flights to destinations across the globe, data from Capa shows. For instance, nearly 60% of Emirates fliers from India use Dubai as a transit hub for the US, Europe or other cities in West Asia and Africa.
“It’s a brilliant strategy,” says Robey Lal, former country head for International Air Transport Association, a travel industry grouping. “How are the Indian carriers going to overcome this?”
The price-sensitive Indian passenger—outbound travellers are double those who fly to India—makes this hub-and-spoke strategy of airlines such as Emirates and Singapore Airlines even more successful.
“So huge numbers of the Indians in the UK will travel on the cheapest fare regardless of whether this involves stopping in some Middle Eastern country,” says the London analyst quoted earlier. He predicts that even Lufthansa and British Airways Plc that today provide superior connectivity to the US, will be affected when Emirates and other airlines start flying to smaller cities in the US.
The success of the hub-and-spoke model for Singapore Airlines and Emirates is bad news for Indian airport firms too.
At least $5 billion is being spent on airports such as New Delhi, Mumbai, Chennai and Kolkata to prepare them as international gateways for India.
But with more international flights tapping airports at smaller cities directly and diverting passenger traffic that would otherwise have travelled through a large airport in India such as the ones in New Delhi or Bangalore, the ambitions of developing an aviation hub in India on the lines of Dubai, Frankfurt or Singapore may remain unrealized.
Data reflects as much. In the last five years, the proportion of international passengers handled in Delhi and Mumbai has declined from 58.2% to 51.3%, according to Capa.
The government’s decision to go slow on the allocation of fresh bilateral allocations, which was one of the demands made by Air India to Prime Minister Manmohan Singh in June, meanwhile, is already being lobbied against, according to the civil aviation official quoted earlier.
“There is a lot of pressure,” says the official. “They (West Asian carriers) are very unhappy with entitlements. They want to double (or) triple that because they are buying new jets.”
Graphics by Sandeep Bhatnagar/ Mint and Photo by Bloomberg