BackRebuilding the Air India brand is hard, says IATA
The airline’s brand has diminished and its market share shrunk over last 25 yrs
PremiumNEW DELHI : New Air India has strong promoters and stakeholders, but it’s a long way from competing with airlines like Etihad and Emirates, International Air Transport Association director general Willie Walsh said.
“I think it is a very strong development for Air India. The combined entity of Air India and Vistara and particularly with Singapore Airlines taking 25.1% stake in the combined entity has to be seen as a positive development," Walsh said in an interview. But he cautioned that the recently privatized national carrier has a long way to go to rebuild its brand, which he said has been diminished over the last 25 years, losing significant domestic market to other carriers.
IndiGo is the largest domestic airline in India with a market share of 56.7% as of October, followed by Vistara at 9.2%, Air India at 9.1%, and AirAsia India at 7.6%. The Tata group-run Air India brand now has four airlines under its umbrella—Air India, AirAsia India, Vistara and budget international carrier Air India Express.
“If you look at where Air India was historically and where it is today, it is a long way to recover the lost ground that Air India has experienced over the last 25 years. So, if you look at how the Middle East hubs have developed during that period and what has happened to Air India during that period, they have gone in opposite directions," Walsh, the former head of International Airlines Group and British Airways, said.
He said it will be a tough job to rebuild the Air India brand by the Tata group and Singapore Airlines, given the airline’s historical financial performance, but added that Air India cannot get better shareholders than the current owners to turn it around.
Walsh was also confident about the scope for a single company to run a full-service as well as a low-cost airline in India.
“It really depends on the management team, the strength of the investors behind the business that will determine whether they succeed or not," Walsh said.
Recently, Indian airlines such as Vistara, IndiGo, Air India and SpiceJet indicated their clear path to expand internationally which promise better yields than domestic services. The civil aviation ministry has also encouraged airlines to opt for wide-body aircraft fleet to help India become an international air travel hub. The government has plans to make multiple centres for international flights catering to specific overseas markets, Mint reported earlier.
However, Walsh said India does not have the strategic location to build a hub for international flights to geographies such as Europe, the US and the Middle East.
“Clearly India should be connected globally, but a hub is connecting traffic over your home country. If you look at the Middle East, the hubs make sense because they can connect North America on one side and Asia on the other. Not sure if it would make sense from a hub point of view to have a hub in India... you are unlikely to fly into India to (then) fly from India to the Middle East. The geographical position of India does not play extremely well in creating a global hub," Walsh said.
He, however, said that the domestic market is marked by strong competition that has benefitted from airlines like IndiGo, which he said has seized every opportunity that presented itself, especially after the shutdown of Jet Airways.
“India sometimes forgets about the benefits it had from competition, particularly in the domestic market. IndiGo is a very good airline—well-run, big network, strong position in the domestic market, and clearly very ambitious as well. Competition is going to be interesting in India and that’s the way it should be; Indian carriers have a great home market to compete in and build a strong base to compete internationally as well," Walsh said.
Airports have experienced greater stability in the aviation sector than airlines. The Indian airport sector has also seen entry of more private firms such as Fairfax and Adani Group. The government is also set to invite more private companies for 11 airports under a public-private partnership programme.
While airports have often complained of a need to increase charges to compensate for their investments, Walsh said airports need to bring in more efficiency to save costs for airlines.
“We have seen in some cases in India where airports have tried to increase significantly their charges; my point is airport charges are a significant cost. Airports will say their costs are not a significant part of an airline’s cost base, but in the best time in history, we (airlines) were making an average of $10 profit per passenger, it shows you how thin the margins are," Walsh said.
“Airports have to recognize that every single cent, rupee that gets added to the costs of airports is a significant issue for airlines. And we cannot tolerate a situation where airports can take advantage of their monopoly situation and their quasi-monopoly position to increase their charges," he said, adding that these charges are ultimately passed on to the airlines, thereby raising air fares and putting at risk the whole business model of airlines and as a result, airports.
In the latest outlook dated 6 Dec, IATA has estimated that Sustainable Aviation Fuel (SAF) production will reach at least 300 million liters in 2022 from around 100 million litres in 2021. This will account for around 0.1% of the global jet fuel produced in the year.
In India, the government is working on making it compulsory for airlines to blend sustainable fuel with the aviation fuel they use, pointing to the need to achieve lower carbon emissions. Walsh argued against any mandate without sufficient production of the green jet fuel as without substantial sustainable aviation fuel, a mandate on usage of green fuel will only harm airlines as has been seen in France.
Overall, IATA expects India to recover ahead of most countries in the Asia-Pacific region but the growth is expected to be led by Thailand and Singapore, and the slowest recovery is expected in Hong Kong. The recovery is expected to start from 2024 as airlines in Asia-Pacific region are expected to continue being in red until 2023 at least with net loss pegged at around $6.6 billion from net loss of around $10 billion in 2022. The removal of travel restrictions in China will also affect the outlook for overall region.
“You could argue that it (India) should more important than China given the potential of domestic market and attractiveness to international traffic as well. There is no reason why India should not aspire to be as important if not more important than China," Walsh said.
The writer is in Geneva at the invitation of IATA.
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