Gulf Carriers

Biz@India

June 2015

While gulf carriers such as Emirates, Qatar Airways and Etihad had carved a niche in India’s aviation, the liberalisation in the FDI by the government made them more aggressive.

The three big boys of aviation in the Gulf and Middle East – Emirates, Qatar Airways and Etihad have set the stage for competition on all major global network. Their success, at times attributed to massive subsidy by their respective governments, have become case studies across the world. And why not. Emirates that started expanding in Europe only in 2000 has become one of the top airliner operating on routes connecting to the economically powerful European Union.

In India their achievement is not mean with flights penetrating smaller cities and towns. Going by an internal publication of Emirates, the airline connects 10 Indian cities, via one stop, to 15 cities in the Middle East, 23 in Africa, 37 in Europe and 13 in the Americas. It claims that 80 pc of these destinations are not served by any Indian carrier. In a way, Emirates is no less local than its Indian counterparts on various routes between Dubai and India.

Everyone wants a chunk of the pie

Doha-based Qatar Airways is making all-out attempt to chase its peer and fly past. And after acquiring strategic stake in the country’s largest private airline by fleet size Jet Airways, Abu Dhabi’s Etihad has aligned its international operations with its partner’s wide domestic network. Moreover, there is a possibility of India signing its first air services bilateral agreement with Qatar. This could further bring capacity on the high volume India-Gulf route offering passengers more flying choices at affordable price.

The dominance of Gulf carriers in the Indian aviation market is proven by the fact that local Indian carriers have become wary of their enormous financial muscle to drive the market dynamics. It is learnt that Tatas, one of the India’s most respected business houses that entered the sector with two of its ventures – Vistara and Air Asia India, have cautioned people at highest level of the government about the growing clout of these carriers in the country.

The successive governments at the Centre have liberalised aviation sector allowing more foreign airlines to fly into India and the Gulf carriers seem to be making most of it. Emirates is operating nearly 60,000 seats per week to and from India and has deployed jumbojet A380 on Mumbai- Dubai sector to corner larger chunk of the pie.

In what seems to be indicating its grand plan to expand operations in India the airline has said that domestic carriers alone would not be able to induct required capacity on the international routes.

All the three carriers are riding high on rising international traffic in India. It is estimated that the international passenger throughput would grow to 85 million by 2020 from about 50 million now taking India to third position in the global market. Presently, India is the ninth largest aviation market in the world by total seat capacity. Of the total capacity operated by domestic airlines nearly 62 per cent is on the local routes with the remaining 38 per cent on the international sectors.

“The Gulf has become the defacto hub for most west-bound passengers from India. Coupled with the huge labour class that works in the gulf, the Indian market has played a key role in the growth of the Gulf and Middle East carriers,” says Amber Dubey, partner and India head of aerospace and defence at global consultancy KPMG.

Indian carriers operate about 50 per cent of their capacity on international routes to Gulf. And half of this capacity is deployed to UAE alone. With the government launching electronic visas to dozens of foreign source markets major capacity addition by airlines from both the sides is set to happen.

The Gulf carriers have shown their aggression by not only adding capacity on city-pairs between India and Middle East but also taking onward Indian passengers to the US and Europe.

Gulf carriers Qatar and Etihad have a strong hold in Indian aviation

A Centre for Asia Pacific Aviation (CAPA) report recently said that more than a third of the Indian passengers feed Gulf carriers’ flights to Europe, the US, Africa and Australia. After taking strategic control in Jet Airways about two years back, Etihad has significantly increased the share of Indian passengers in its total traffic. Industry experts expect the share of Indian passengers to further go up with Gulf carriers placing more orders for medium and long-haul jets with aircraft manufacturers Boeing and Airbus.

“Passengers from India contributed 36 per cent to Emirates and Etihad’s US traffic. In the case of Qatar Airways, share of Indian passengers to US traffic stood at 28 pc,” the report said.

Interestingly competition between Indian, Gulf, South East Asia and EU carriers will only harden with time. That will be a bonanza for passengers and the Indian economy as a whole.

For this to happen the Modi government should facilitate open access and free competition in India through an ‘open skies’ policy.

The stumbling blocks

Realising how archaic rules are acting as a stumbling block in India’s aviation sector the new government is now planning to dilute the controversial 5/20 norm. The norm mandates Indian carriers to be in operation for at least five years and have a fleet of 20 aircraft to be eligible to fly on international route.

Ridiculed and criticised by one and all, the 5/20 rule is ‘illogical’, ‘discriminatory’ and ‘retrograde’. Its non-reciprocal, as in, a one day old airline from Nepal, Nigeria or New Zealand can fly into India but an Indian start-up can’t.

However aviation sector observers strongly believe India’s real potential will be unleashed only if the Indian government takes the aviation industry seriously, like its counterparts in gulf and ASEAN countries.

The high taxes imposed on aviation due to its perception by socialism-oriented policymakers as a rich man’s playground has hurt India. Barely one pc of India flies which actually means that the government has wilfully denied flying to India’s teeming millions.

Barely 7.4 million global tourists come to India as compared to Singapore (15 million), Thailand and Malaysia (around 26 million) and China (56 million). Each foreign tourist in India typically spends upwards of USD 500 in addition to flight tickets. One can do the math and figure out how many billions of dollars and thousands of jobs India loses annually by keeping tourists away from India. Seamless global connectivity at affordable prices is one of the key drivers of global tourism.

The other anomaly is that while other elements of the aviation ecosystem— airports, cargo, MRO, helicopter and charter services can have majority stake by foreigners, airlines can’t.

Why can’t Indian carriers be opened up to 100 per cent FDI as proposed by Arvind Mayaram Committee in 2013? Why should airlines be treated like a ‘holy cow’? Majority stake by Indians doesn’t automatically mean that ‘real’ control is in Indian hands.

In European Union, some carriers are suffering due to a high cost base, ageing fleet, confrontationist employee unions, constrained hub airports. We may see more consolidation in EU on the lines of Air France-KLM, Lufthansa-Austrian- Swissair and Etihad-Al Italia.

The Gulf carriers are gaining greater foothold in EU and US every passing year. They are being opposed by legacy carriers but the rise of the Gulf carriers continues unabated. The only risk, warns Dubey, is if the ongoing conflicts in Iraq, Syria and Yemen spill over and make the Middle East airspace risky to operate in.”

The Gulf carriers might be flying high on billions of dollars of subsidy as alleged by American airlines and flexing muscles to scare away rivals but it is definitely helping passengers with more choices, services and affordability and connectivity. It is therefore time for policymakers to fasten seat belt for long-haul and open up the skies for adding frequency to the Gulf and beyond. After all, consumer should stand to gain.