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

It has not created a market in neighbouring countries, unlike its peers

Even as Civil Aviation Minister Ajit Singh wants Air India to compete with the Jet-Etihad alliance, the national carrier's dominance in India's international market is under threat due to liberal grant of traffic rights and the airline's own limitations such as smaller fleet size, fewer code share, and frequent flyer partnerships.

On many key international routes, Air India has a single daily flight. Take, for instance, the 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 and Hong Kong and the same aircraft flies onward to Osaka and Seoul, effectively limiting the capacity.

Ditto 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 the entire Gulf region, while Emirates alone has 185 flights a week from Dubai to 10 cities in India.

"There has been a limitation on Air India's growth, which is self created and government created," said Air India's former executive director Jitender Bhargava. He said 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 to look at a third country.

Therefore, 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 Nepal's civil aviation authority shows 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 Lanka Tourism Development Authority's 2011 data show India and the UK are the top source markets for the country. Sri Lankan Airlines controls 60 per cent 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 OK to sacrifice Air India's interests for the sake of country," remarked an executive, referring to the air service agreement with Qatar. In fact, 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.

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 like a commitment to sell the tickets. In code share, one airline places its code on flights operated by the other airline.

Code share gives an airline better revenue options than an interline agreement, because airlines allow the other partnering airline the opportunity to sell tickets in six-to-eight fare slabs. In interline, usually two or three fare slabs are available for sale to the other airline. A code share alliance also helps frequent flyers to earn miles, something 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 13 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 code share in the US," said an official, indicating that US airlines have been reluctant to tie up with Air India.

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