India: Aviation's Goldmine

India: Aviation's Goldmine
Navi Mumbai International Airport (NMIA).
Published: 27 July 2014 - 1:19 a.m.
By: Nadia Khan

It has been a busy time for India. The country’s recent elections took place against a backdrop of renewed investment and interest in its struggling aviation industry. Held back by government policy barring international investment since April 2000, most of India’s airlines have since failed to yield a profitable return. Last year, after a decade of protectionism of its aviation industry, India finally ruled to open up the sector for investment by foreign carriers.

According to a report published last year by consultants Oxford Business Group, the new ruling has been viewed as a strategic move by the country to channel financial support into its own ailing domestic airline industry. By allowing international airlines to acquire a stake of up to 49% in an Indian carrier, Indian operators now have a chance to turn their fortunes around, says the report. With the Middle East’s airlines keen to increase their foothold in India’s potentially lucrative and underserved market, could these potential partnerships result in a win-win situation for both regions?

“India is one of the key markets for us, partly due to the large number of people from the country being employed or doing business in Bahrain, the Gulf and the wider Middle East region,” says Hussain Rahman, Gulf Air’s country manager for India. “With more than 5.6 million Indian nationals residing in the GCC, passenger demand is high and we are committed to providing strategic links to strengthen tourism and trade between the two countries.” The Bahraini national carrier has shared a long history with India since its first flight to Mumbai in 1971. Since then, Gulf Air has added New Delhi, Chennai, Kochi and Thiruvananthapuram to its Indian destinations.

Rahman believes that the growth potential of the Indian market is reflected in Gulf Air’s network and frequency strength, as well as the close political and economic ties between both countries. “We are continually assessing and studying potential route feasibilities and frequency adjustments in relation to our India route,” he says. Gulf Air added its fifth Indian destination, Thiruvananthapuram, last December – increasing the airline’s capacity to the country by 10% from 45 to 50 weekly flights. Last year’s ruling, Rahman maintains, has provided a positive outlook for Indian carriers, some of which have struggled due to the barring of international investment. “The coming years should see India’s aviation industry taking its first steps toward reforming and repositioning the sector,” he says. “With India’s prime location and key role as an international hub, we expect to see an increase in competition from international carriers.”

Taking India’s aviation industry as a partner, however, does come with its fair share of challenges. Rahman is concerned that this increase in competition could exacerbate the country’s existing challenge of airport congestion, potentially hindering further frequency development. “Global airlines, including Gulf Air, already face a number of challenges operating into Indian airports,” says Rahman. “Among them are rising fuel prices and airport charges, as well as increasingly congested international airports in India leading to difficulty in securing increased frequencies and schedule changes.”

India has never been an easy market to break into. The country’s own airline have struggled with billions of dollars of debt as strict government controls, mismanagement and poor airport infrastructure has impeded the development of the India’s aviation industry for years. There is clearly still some way to go before the Middle East’s airlines can really cash in on the country’s revamped aviation landscape. “Taxes on aviation fuel make operating costs unnecessarily high in India, and infrastructure constraints on airports and air traffic control lead to delays and create operational inefficiencies,” says industry expert John Strickland, director of JLS Consulting. “The still excessive protection of the loss-making Air India also continues to destabilise the market.” Earlier this year, Air India and Jet Airways were also both affected by a downgrade of India’s aviation safety rating from the US Federal Aviation Administration (FAA). All of this has led to industry speculation about Indian carriers seeking to set up hubs in nearby Dubai World Central, as an efficient alternative to the poor airport infrastructure available in their home country.

Despite these concerns, many in the industry are optimistic that India’s move towards accepting foreign investment to support its aviation industry will bring with it a tide of change. “Many international airlines have been waiting for the opportunity to enter the market or increase their presence,” says Strickland. “The Indian market is already vast, and with expected economic growth and a large middle class with disposable income and a desire to travel, its size and importance will only increase.” Given the country’s proximity to the Gulf and the large ethnic populations from the sub-continent based in the region, India is clearly a hugely important market for the Middle Eastern airlines. “This applies both for short haul carriers, and especially low-cost carriers, flying point to point passengers, and for long haul airlines feeding traffic from India into their global networks via their Gulf hubs,” says Strickland. “If deregulation rolls out further we will also see more partnerships, some of which could be financial, such as the existing Etihad equity stake in Jet Airways whilst others could be close commercial collaborations.”

The approval for Etihad Airway’s 24% investment partnership in India’s Jet Airways, announced last December, represents the Abu Dhabi national carrier’s long-held ambition to capture the lion’s share of the Indian market. “Through our purchase of 24% of Jet Airways – the first foreign investment permitted in an Indian airline – we have laid the foundations for major and exciting growth in air services between Abu Dhabi and India,” says James Hogan, president and CEO of Etihad Airways. “Subject to receiving regulatory approvals, we will continue to expand our Abu Dhabi-India operations and work with our growing stable of partners to accommodate strong growth and deliver much greater choice for travel to and from India.”

Etihad’s expansion plans for India go even further. A staggered increase in flights to the carrier’s Indian destinations is already on the cards. Flights to Mumbai and New Dehli have doubled last year, with flights to Kochi, Bangalore, Chennai and Hyderabad all expected to follow suit later in 2014. Routes to Mumbai and New Delhi will receive a further capacity boost as the usual Airbus A320s are replaced by wide-bodied A340 and A330 jets. “India is one of the world’s largest and fastest-growing air travel markets, and will play an increasingly important role in our growth,” says Hogan. “These increases enable us to serve not only the local traffic demands between Abu Dhabi and India, but also to deliver much greater international connectivity for business and leisure guests.” To promote the importance of this partnership, Etihad and Jet Airways recently signed up as joint official airlines of the Mumbai Indians cricket team, champions of the last Indian Premier League (IPL).

The Emirati carriers have clearly been ahead of the game when it comes to increasing their capacity into India. Earlier this year, India’s government took the decision to permit airlines to fly A380s into India, subject to existing traffic entitlements within bilateral agreements. As well as Etihad, this move bodes well for Dubai’s Emirates Airlines and flydubai, and both have been pushing for extra capacity on their routes to and from the subcontinent. Earlier this year, India’s aviation authorities agreed for 11,200 extra seats to be shared between Dubai carriers Emirates and flydubai. Although this only represents a third of the 20% extended allowance requested by the two airlines, the increase has been the first to be granted by the authorities since May 2008. Both airlines have complained that their current flights to and from India are running at almost full capacity, whilst Indian carriers continue to fly with considerable unused capacity across selected routes. For low-cost carrier flydubai, India represents its third largest country after recently adding Delhi, Kochi and Thiruvananthapuram to its network. “India has always been an important market for flydubai,” says Sudhir Sreedharan, senior vice president commercial (GCC, Subcontinent, Africa) for flydubai. “We are delighted to be given the opportunity to better serve the Indian market.”

Following hot on the heels of the UAE, Qatar Airways has also expressed its intention of seeking a larger share of the Indian market. The national carrier already serves several airports in the country. “The subcontinent has a population of 1.2 billion people, including a very strong and growing middle class,” says Akbar Al Baker, CEO of Qatar Airways. “Being only three hours away from India, we are naturally very keen to serve this market.” The airline has had fruitless talks with SpiceJet in the past, and more recently expressed interest in an association with India’s low-cost domestic airline, IndiGo. Nothing has been confirmed yet with India’s only profitable and fastest growing airline, but Qatar Airways CEO remains upbeat about the country’s potential. “With India on its way to becoming a real economic superpower, there will be a huge economic outlook change in India following the elections,” he predicts.

Other industry leaders share his optimistic outlook. The International Air Transport Association (IATA) has long expressed its increasing confidence in the potential of India’s aviation sector. By 2020, the association predicts that the country will have become the third-largest aviation market in the world, pulling a staggering 450 million passengers into Indian airports. Around 90 million of passengers per annum are anticipated to pass through the busy Delhi airport alone. According to Tony Tyler, IATA’s director general and chief executive, this stronger aviation sector will be a catalyst for wider economic benefits for the country as a whole. In a speech last year, he stated “India is the great potential market of the future, and the industry here has only just begun to realise its enormous promise.” But reaching this potential in the global aviation arena is a journey that India cannot take alone.

According to IATA, the Middle East has shown the strongest year-on-year traffic growth in the first quarter of this year, backed by the strength of regional economies and solid growth in business travel. Capacity growth in the region only mildly outpaced traffic growth. As the region’s major airlines continue to report profitable returns, this could place them as excellent partners for India’s cash-strapped aviation sector. With a much improved airport infrastructure needed to support the potential boom of the country’s aviation industry, the future lies very much in the hands of India’s next government.

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