Etihad, Emirates and Qatar Airways have moved swiftly to take advantage of the Indian flag carrier’s woes as it struggles with mismanagement and falling routes.
Air India in the eye of a storm
MUMBAI // The three major Arabian Gulf airlines are exacerbating the woes of Air India, the loss-making flag carrier of India.
Mismanagement and the decline of Air India’s routes into the Gulf mean the Indian carrier is in a weak position to compete with Emirates, Etihad and Qatar Airways, as they continue to eat into its market share, analysts say.
“A lot of the outbound traffic has been captured by Emirates,” says Satish Modh, who was in the aviation sector for 28 years and worked on a turnaround plan for Air India before becoming the director of the Vivekanand Education Society Institute of Management Studies and Research, based in Mumbai.
Emirates is often jokingly referred to as “the national airline of India”, he adds.
The Gulf was once a lucrative market for Air India. But over the years authorities have allocated a large number of seats to Emirates, meaning Air India’s flights into the region have dwindled. This is a move from which Air India has been unable to recover.
“The other two [major Gulf] airlines are just digging the grave deeper for Air India,” says Mr Modh. “As far as the Middle East market is concerned the game is over for Air India.”
The overstaffed state-owned Indian carrier guzzles hundreds of millions of dollars of taxpayers’ money every year. Air India posted a net loss of 55 billion rupees (Dh3.06bn) in the financial year to the end of March 2015. In the previous financial year, its net loss stood at 54bn rupees.
While Air India carried 4.98 million passengers to and from India last year, Emirates was not far behind at 4.83 million passengers. With India’s population of more than 1.2 billion and the large number of Indian expats in Dubai, this is a key market for Emirates and the other Gulf carriers. The Dubai carrier in July last year started flying the double-decker Airbus A380 on its Mumbai route.
“The Arabian airlines have been penetrating growth in India far more effectively than Air India has on its own turf,” says Saj Ahmad, the chief analyst at StrategicAero Research, an aviation consultancy. “Air India has rested on its laurels and the growth of the big three Gulf carriers has shaken the competitive landscape in their favour. This is why Air India is not only losing customers, it’s losing money.”
Etihad bought a 24 per cent stake in Jet Airways for US$379 million in 2013, becoming the first foreign airline to take advantage of the Indian government’s relaxation of rules on overseas investment into carriers. The partnership has given the Abu Dhabi carrier greater access to the Indian market.
“When Etihad aligned with Jet Airways, it got access to most of the interior routes,” says Mr Modh. “As per current statistics, Jet flies more passengers to the Gulf than Air India. Qatar is also catching up now.”
With Etihad’s extensive and ever-growing international reach, coupled with its alliance with Jet Airways, the duo pose a major threat to Air India on flights across the world, including into North America.
Jet and Etihad in August announced that the two carriers combined offered more flights to and from India than any other airline, with a 21 per cent share of the country’s international air travel market.
Following Etihad’s investment into Jet, the number of direct routes between India and Abu Dhabi has risen to 15 from nine, while the carriers have introduced wide-bodied aircraft on some routes and increased to multiple daily flights for some destinations. The number of seats across both airlines now total 40,000 every week between Indian and Abu Dhabi both ways.
“Before our equity deal with Jet Airways, we had 2 per cent of the international traffic out of India,” says James Hogan, Etihad’s president and chief executive. “Jet Airways is now our number one equity partner for revenue and passenger contribution on Etihad Airways. India is now Abu Dhabi’s number one source market for international visitors.”
In response, Air India has tried to up its game, for example by joining the Star Alliance global loyalty programme. It has added more flights to London and it recently announced a non-stop flight to connect Delhi and San Francisco, to be launchednext month. This will be Air India’s fourth non-stop flight to the United States and will be one of the world’s longest flights.
But analysts point to fundamental flaws in Air India’s business model and performance, which have allowed other airlines to soar above the carrier.
“Given that Air India is completely mismanaged, it is little wonder that Arab airlines have been able to plunder the spoils of Indian aviation with ease,” says Mr Ahmad.
The three big Gulf carriers are far superior in terms of their product and service, he says, which means travellers tend to favour those airlines, he adds.
Mr Ahmad says that at this stage there is very little hope of Air India ever being able to compete effectively with the Gulf airlines.
“The damage to Air India has already been done,” he says. “Air India will never find a solution to competing with Gulf airlines.”
A turnaround plan has been put in place for Air India but analysts remain sceptical about how effective this will prove to be ultimately, particularly given the fierce competition the flag carrier faces.
“Foreign carriers, which handle around 65 per cent of international traffic to and from India, grew their passenger numbers by around 8.6 per cent [in the past financial year] but several airlines would have expanded faster if they were not constrained by bilaterals,” according to the Capa Centre For Aviation. It says foreign carriers, including Gulf airlines, are pushing for an additional 100,000 seats a week in the near term.
Gulf airlines have indicated they would increase their presence in the Indian aviation market even further if bilateral rights permit them to do so.
The extent of the negative impact of the competition on Air India going forwards partly depends on “how much more the Indian government allows greater inroads into Air India’s backyard”, Mr Ahmad says. “Having said that, even the current status quo of operations from UAE-based and Qatar-based airlines is enough to keep customers defecting from Air India.”
But Mr Modh says Air India does have the potential to improve its position.
“India is positioned strategically on the international aviation map,” he says. “It has just the right distances for the type of aircraft available in the market to fly to various destinations in south east Asia, Europe and US.
“Looking at the growth of Indian traffic if Air India can provide non-stop from metros – or one stop from interior – flights to destinations in the world, Indians would prefer Air India over the Gulf carriers. The government of India, meanwhile, should not allocate more seats to these airlines to or from India. This will curtail the damage in the future.”
Air India would also reap rewards if it acquired more planes and expanded its domestic routes to interior areas of India beyond the major cities, where are there are vast numbers of Indians waiting to take to the skies, he adds.
“There are too many competitors struggling to catch attention of [major city] passengers,” he says. “By expanding deep into the countryside Air India can reinvent its dominance in the domestic as well as international market.”
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