Business

Jet Set, Rest Doomed

In obliging foreign carriers, is the government shortchanging its own?

Advertisement

Jet Set, Rest Doomed
info_icon

Flight Plan

How Indian airlines measure up against their Gulf counterparts and how Jet-Etihad kind of deals will work to their detriment

  • Over 40 per cent of Indian traffic to the Gulf is outbound to US and Europe. For Abu Dhabi, it is much higher at 74 per cent.
  • India offers Gulf carriers access to about 10 airports. In return, Indian carriers get access just to two or three airports, as most Emirates are city-states
  • Higher seat allocation to Abu Dhabi is likely to affect the traffic of Indian carriers like Air India, Spicejet and Indigo. Jet itself may get the advantage of its tie-up with Etihad.
  • Other global carriers might also exert pressure, seeking more seat capacity, further affecting Indian airlines
  • Airport operators have opposed higher seat allocation to Abu Dhabi saying it has utilised only about 65 per cent of its seat entitlement. India’s seat utilisation is similar.
  • Government move to allow Jet-Etihad to fly from 23 more smaller cities will help fliers but affect business of larger airports like Delhi and Mumbai.

Advertisement

***

Will India’s first FDI deal in airlines be its most defining one—and not necessarily in a positive way? On the face of it, last week’s mega deal in which Abu Dhabi’s national carrier Etihad Airways acquired a 24 per cent stake in India’s largest private carrier Jet Airways for $379 million would bring the latter much-needed funds. However, it could also have an irrevocably long-term impact on Indian aviation and put many Indian carriers in the red.

The deal and the government’s decision to increase weekly air traffic seats between India and Abu Dhabi from 13,300 to almost 50,000 over three years could deal a blow to Indian carriers and airports. What’s more, there is also a move to allow Jet-Etihad to fly from 23 smaller Tier-II and Tier-III cities. Will this ring the death knell for India’s (legitimate) right to develop homegrown aviation hubs? Will we instead be giving way to West Asia’s small city-state airports? And who will it benefit?

Advertisement

The consumer, according to Union aviation minister Ajit Singh. He feels that this increase in bilaterals will make travelling cheaper and easier for people from smaller Indian towns. Currently, they have to travel to Delhi, Mumbai or Chennai to fly out to Europe or the US. That defence is valid as it would indeed lead to significant savings for such passengers. At the same time, this move leaves domestic airlines (which have been acquiring wide body, long-haul aircraft to feed increasing traffic) and airport operators (particularly in the metros) in a lurch.

The increased seat capacity to Etihad would translate into the airline operating more flights from India and connecting passengers to Europe, North America from its home hub Abu Dhabi. This would leave large Indian airports high and dry. And if Jet-Etihad is allowed to fly from 23 more Tier-II and Tier-III cities, passenger traffic from these cities will bypass big Indian centres like Delhi and Mumbai for overseas flights. This would mean significant loss of traffic and revenue for carriers and loss of business for airports, defeating the purpose of developing Indian aviation hubs.

info_icon

“In one stroke,” says former Air India executive director Jitender Bhargava, “the government has changed the market paradigm. It has taken a decision without looking at the total implications on the Indian aviation sector. Carriers like Air India, Indigo and Spicejet will be net sufferers as they have ordered large aircraft. They will now have to relook their business model.”

Airlines and airport operators have already mounted a campaign. The Association of Private Airport Operators (APAO), which has as members the developers of the new airports in Delhi and Mumbai as well as Hyderabad, Bangalore and Kochi, have shot off a letter to aviation secretary K.N. Srivastava. “The proposal for any bilateral enhancement of seats combined with foreign carrier investment should be carefully evaluated to avoid the dilution of efforts to grow Indian aviation in the long term,” the letter stated. Experts also say that airport developers have invested in airports based on certain premises of passenger traffic. Such change in policy will make business unviable.

Advertisement

The premium treatment given to Eti­had and Abu Dhabi has also irked the Union finance ministry which was rep­ortedly opposed to the sugar-coated terms offered to the emirate on gro­unds that it would put Air India and other domestic carriers and airports at a disad­vantage. According to some exp­erts, the aviation ministry took the decision to increase seats in the face of opposition from other stakeholders like carriers and airport operators, who were given no chance to explain their point of view.

It is evident that India could have become a regional gateway and hub for South Asia, Southeast Asia and West Asia because of its strategic position of being sandwiched between the East and West. In fact, the government had grand plans to develop Delhi, Mumbai and Chennai as aviation hubs. But thanks to slow progress and planning coupled with crucial bilaterals being given away to airlines from other countries and airports by previous regimes in the ministry, that has not happened. On the other hand, Singapore, Dubai and Bangkok have in the last few years developed as major hubs, and Hong Kong, Kuwait and Doha as lesser hubs. Now you can add Abu Dhabi to that list.

Advertisement

And this may be just the beginning. Going at this rate, India’s airports could also face a threat from the new Doha International Airport Terminal and Muscat’s new terminal which is little over an hour from Delhi and Mumbai.

Also, while Emirates and Singapore Airlines have become global mega carriers, India has not been able to develop even one large home carrier which is crucial to developing an aviation hub. Says Mark D. Martin, founder and CEO, Martin Consulting, “The more India chooses to control flight rights through bilaterals, the more it becomes vulnerable to ‘backdoor’ entry steps such as the one taken by Etihad. The only way for India’s carriers to aggressively regain control of flights and network to and from India is for India to comprehensively move towards creating a level playing field by transitioning to a blanket open sky environment.”

Advertisement

Etihad’s deal with Jet is part of the larger play in the Gulf between Dubai and Abu Dhabi in which both emirates are vying for economic supremacy. In aviation, clearly, Dubai’s national carrier Emir­ates won a lion’s share of bilaterals and is currently the leading airline between India and the Gulf. Abu Dhabi has just embarked on its res­ponse and is moving swiftly to gain a larger share of the pie. But unlike Emi­rates, Etihad is following an inorganic route through acquisitions, and has invested in carriers like Air Seychelles, Air Berlin and Kenya Airways.

Says K. Raveendran, a Gulf-based commentator, “It is part of a bigger fight between Emirates and Etihad. Emirates had the initial advantage. Now oil-rich Abu Dhabi, which has more money than Dubai, wants to catch up, and has taken an aggressive stance to get to that position.”

Abu Dhabi’s interest in extracting more from India is also because the aviation universe has shifted from North America to India and China given the increased traffic flows from these areas. Emirates has 54,200 seats per week with India and is already seeking 80,000 seats. With the government being so magnanimous towards Etihad, Emirates may increase pressure to extract more for itself—ditto for Singapore Airlines and Qatar Airways.

Ironically, Ajit Singh had in September 2012 insisted that no fresh bilaterals would be signed till Indian carriers have exhausted their quotas. But thanks to this sweetened deal for Jet-Etihad, West Asian airlines will continue to serve a larger and larger share of Indian outbound passengers.

Advertisement

Tags

    Advertisement

    Advertisement

    Advertisement

    Advertisement

    Advertisement

    Advertisement