Air India faces uphill task to stave off Jet-Etihad challenge

Its hold over India's international market is under threat due to liberal grant of traffic rights and its own limitations, like smaller fleet size

Civil aviation minister Ajit Singh wants Air India to gear up to face the competition posed by the Jet-Etihad alliance but Air India's dominance in India's international market is already under threat due to liberal grant of traffic rights and airline's own limitations including smaller fleet size, and fewer code share and frequent flyer partnerships.

On many key international routes Air India has a single daily flight. Take for instance India-Hong Kong route. Cathay Pacific  and its subsidiary Dragon Air have 46 weekly flights from India and Hong Kong. Air India has a seven weekly flights between Delhi-Hong Kong and the same aircraft flies onward to Osaka and Seoul effectively limiting the capacity. Similar is the case with Frankfurt and Paris routes  from where Lufthansa and Air France connect various points in India whereas the national carrier flies one daily direct flight from Delhi.

Excluding its low cost arm (AI Express), Air India has 341 weekly departures on foreign routes. This includes 155 flights to all of Gulf region while Emirates alone has 185 flights a week from Dubai to ten cities in India.

"There has been a limitation on Air India's growth which is self created and government created,'' Air India's former executive director Jitender Bhargava remarked. He said that the airline never fully exploited the potential of getting passenger feed from Sri Lanka, Bangladesh and other countries for its Europe or  US flights. One of the reasons for that was Air India had enough potential to fill up aircraft from within India and actually it did not have at  to look a third country.

Thus, on the one hand, foreign airlines have gained access to multiple points within India and are nibbling away passenger market, Air India has not created a market in neighbouring countries which could feed into its international flights.

As data from Nepal and Sri Lanka indicates Air India does not make into the top three-four airlines serving that country. Data from civil aviation authority of Nepal shows that  the Gulf airports collectively handle more traffic out of Nepal than India. Qatar Airways, Jet Airways and even Air Arabia fly more passengers to/from Nepal than Air India.

Similarly Sri Lankan tourism development authority's  2011 data shows India and UK are the top source markets for the country.  Sri Lankan Airlines controls 60 percent of capacity from Colombo followed by Emirates, Cathay Pacific, Jet Airways and Qatar Airways, it said.

Air India officials blame the government for opening up the skies and delays in aircraft acquisition.  "It is okay to sacrifice Air India's interests for the sake of country,'' an executive remarked referring to air service agreement with Qatar. Infact the Comptroller and Auditor General report too noted that the seats entitlements with Qatar  were enhanced because of "political considerations.''  "Now history is repeating itself,'' the official added referring to the new agreement with Abu Dhabi.

The official added that Air India does fly 15-30 passengers daily from Europe-Kathmandu via its Delhi hub.  "We can do far more and  would like to add more flights to Kathmandu. But where do we have additional  planes.'' an Air India executive asked.

Kapil Kaul of Centre for Asia Pacific Aviation said  "India needs a equitable, transparent long term bilateral policy which is in India's national interest. Unfortunately, India's bilateral policy is adhoc and can be easily influenced.''

Some within the airline  blame the crisis on "bad luck" citing examples like the  problems in integration of Air India-Indian Airlines, the delays in creating a common reservation system, its failure to get into the Star Alliance and Boeing's inability to provide Boeing 787s on time - all of which handicapped the airline.

Code Shares and Alliances

Legacy full service airlines build networks in two ways - deploying own capacity or partnering with other airlines through commercial agreements. These include interline agreements and code shares which allow one airline to sell tickets on flights operated by other airlines. While interline is an arrangement to sell tickets,  a code share is a  like a commitment to sell the tickets. In a code share one airline places its code on flights operated by the other airline.

A code share gives an airline better revenue options than an interline agreement as airlines allow the other partnering airline opportunity to  sell tickets in 6-8 fare slabs. In a interline usually 2-3 fare slabs are available for sale to  the other airline. A code share alliance also helps frequent flyers to earn miles some thing which interline arrangement does not allow.

Etihad has code shares with 42 airlines and these partnerships have helped it to grow its network, passenger numbers and revenue.  Air India has code share agreements with thirteen airlines and frequent flyer partnerships with two airlines but none of them with a US airline. Air India  has a code share with Singapore Airlines but not on Australia-New Zealand routes.  "It is not that we do not want a a code share in the US,'' an official said indicating that US airlines have been reluctant to tie up with Air India.

Air India spokesperson did not share data on its onward (sixth freedom) traffic and code share revenue.