Home >Companies >News >India’s aviation market at the heart of tiff between US, Gulf airlines

Someone else eating your lunch is no fun, especially if the meal is at 35,000 feet in the sky.

The three largest US airlines are in a similar situation. Alarmed by Gulf airlines carving out a large slice of the lucrative India-US air traffic, American Airlines Inc., United Airlines Inc. and Delta Air Lines Inc. have teamed up for damage control.

The three airlines on 5 March alleged that Dubai, Abu Dhabi and Qatar collectively lavish subsidies worth $42 billion on the airlines they own—Emirates, Etihad Airways PJSC and Qatar Airways, respectively—tilting the playing field in their favour.

In a so-called white paper, American, United and Delta also asked the US government to renegotiate its Open Skies agreements with the countries that had led to the addition of millions of seats on US-bound flights operated by the Gulf airlines.

The white paper asked the US government to address the flow of subsidized capacity (read flights from the Gulf to the US), and sought a freeze on new flights by them to the US during the consultations.

At the core of the squabble is the so-called sixth freedom traffic. Essentially, sixth freedom is an airline’s right to fly from one foreign country to another, stopping mid-way at its home base for non-technical reasons. For example, when British Airways Plc. flies from India to the US via London, it is protected by the sixth freedom right.

According to the airlines’ white paper, India-US air traffic accounts for 22%, or over one-fifth, of all US-Asia sixth freedom traffic.

And that’s raising hackles.

“The notorious US white paper doesn’t directly give away the secret, but is found clearly implying what most of the noise is about: access to Indian—mostly sixth freedom—passenger traffic," notes a June report by consultancy firm Capa Centre for Aviation.

Under different heads, the white paper lists what it says are state subsidies enjoyed by Emirates, Etihad and Qatar Airways, to make its case that lost bookings are leading to job losses at US airlines.

The paper says Gulf carriers’ share of the US-Indian subcontinent bookings more than tripled (from 12% to 39.8%) during 2008-2014 while US carriers and their joint venture (JV) partners lost nearly 800 bookings per day.

No wonder US airlines are worried.

The Gulf airlines collectively operate more international flights out of India than flag carrier Air India Ltd. Qatar Airways flies to 12 cities in India, the most by any Gulf airline. This means you can catch a Qatar Airways flight from any of these cities to a variety of international destinations, including the US, via the airline’s hub in Doha. Emirates flies to 10 cities in India, from its Dubai hub. Similarly, Etihad Airways serves a total of 10 Indian cities via its hub, Abu Dhabi.

In 2013, Etihad Airways purchased a 24% stake in Jet Airways (India) Ltd, India’s second largest airline by passengers carried. After this, it has re-routed at least one out of every three international Jet flight through Etihad’s Abu Dhabi hub.

According to stated plans, Gulf airlines will deploy a total of 4.3 million seats to the US in 2016, double that of 2013. And a lot of them will be occupied by passengers from India.

According to the US airlines, Gulf carriers are planning more capacity addition, fuelled by state subsidies. By 2016, Etihad will have 80% more seats over 2009 to the US, a record high. Qatar Airways and Emirates will have 50% and 40% more seats in 2016.

“For the record, Emirates does not receive and never has received any form of subsidy from the UAE Government. And considering that we have operated to the US since 2004, we fail to understand how we can possibly be competing unfairly in 2015," Emirates said in a statement in May.

Emirates added that “the real issue at hand is that the three biggest US carriers, who together with their joint venture partners already control about two-thirds of international flights from the US, want to further limit the international air transport choices available to American consumers, airports, local and regional economies".

The US is Etihad’s second-largest market whereas for Emirates, it is the third-largest. For both, the largest market is India.

According to Capa, under the fairness terms of the original bilteral flight agreements between India and the US, all of the India-US air traffic “belonged" to airlines in India and US. However, sixth freedom rights and Open Skies pacts have opened up the market to competition from unexpected quarters.

A senior Air India official, who did not want to be identified, agreed that Air India and Indian airlines are at disadvantage. However, he did not elaborate, citing the sensitive nature of the matter.

On 14 May, Akbar Al Baker, group chief executive of Qatar Airways, refuted the “baseless" claims of the “Big Three" US airlines (American, United and Delta), calling them “a transparent attempt to block new competition and limit consumer choice".

“US Open Skies Agreements are about offering choice—the ability to fly with the airline you prefer, to regions which are under-served by US carriers," said Al Baker. “The Big Three want to restrict choice. World travellers would suffer if they succeed.“

James Hogan, chief executive officer of Etihad Airways, at a panel discussion in Miami on 11 June, said it has invested nearly 2,000 crore in Jet Airways in an attempt to corner a large share of the 40 million Indians travelling abroad every year.

Emails sent to Emirates and Etihad did not elicit any response. Qatar Airways directed to statement made by the airline on 14 May.

According to independent aviation consultant Bharath Mahadevan, “Given the proximity of India to Gulf countries, Indian carriers are most definitely at a disadvantage, when it comes to the subsidies given by these governments to their airlines, as they have the financial muscle to buy more aircraft and pump in more capacity into India and to other destinations."

The US airlines’ white paper complains of the lack of a level playing field, but according to Capa, this is a matter of perspective.

“As described, it certainly isn’t level for the Indian airlines. If it were not so sad, the most delightful part of the “stolen" traffic syndrome (stolen from the “US carriers and their JV partners") is that it is largely inspired by the diversion of Indian traffic over the Gulf," it said.

According to Capa, the word’s biggest airlines are actually fighting over what used to be Air India’s “birthright" (traffic from India).

But the languishing state-owned airline is surviving on a 30,000 crore government bailout, and is nowhere in the fight for the India-US traffic. The airline, which had a total debt of 40,000 crore as of 31 March, is expected to turn around only by 2018-19.

“..Air India is locked out of the powerful Atlantic immunised joint ventures that are feeding on its national traffic. Although it is now a Star Alliance member airline, it has to sit on the sidelines as the bigger European and North American airlines privately divide up its India traffic between them, funnelling it over their European hubs," the Capa report said. Star Alliance is a global grouping of airlines and Air India became a member last year.

Air India was originally accepted as a future member of Star Alliance in December 2007, but the integration process was halted in July 2011 as the airline could not meet some of the required parameters. It was renewed only in December 2013.

Joining Star Alliance means Air India passengers can use Star’s facilities like airport lounges and redeem air miles on airlines such as Deutsche Lufthansa AG, Singapore Airlines Ltd and United Airlines.

However, some of that traffic over the Gulf “diverted" away from the “US carriers and their JV partners" is now actually being carried by Jet Airways through codeshare with Etihad Airways.

“To suggest that Jet Airways, an Indian airline, can be stealing its “own" traffic from foreign sixth freedom airlines which have grown used to feeding on the Indian market is surely a little north of cynicism," Capa noted. The Jet Airways acquisition helped Etihad bring Jet’s Indian passengers to US shores.

So, is there anybody taking up the issue of US versus Gulf versus Indian airlines?

At its annual general meeting held in Miami on 7-9 June, the International Air Transport Association (IATA), a global body of 250 airlines accounting for 84% of international air traffic, washed its hands off the matter. IATA merely said it has taken a note of the rift between state-owned airlines and those owned wholly or predominantly by private shareholders. In any case, IATA is not the battleground on which any resolution will be achieved.

“The country with the most negative impact of Gulf airlines on its own airlines is India. The second-most impacted group are the European Union (EU) carriers. They (EU carriers) have been up to now the most vociferous," said Craig Jenks, president at New York-based consultancy firm Airline/Aircraft Projects Inc.

Which prompts the question: Why the silence from the Indian side?

“First, the Gulf carriers (and airports) are very large employers of Indian expats. So, that is positive for India, if not its aviation sector. Second, Etihad Airways basically rescued Jet Airways. Third, the Indian government does not have a policy of pro-actively building hub capacity, or of supporting such building. Consequently, Indian carriers would find it very hard to compete with Gulf carrier connectivity," Jenks said.

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