Revising UAE air service pact will hurt Indian airlines, spike fares: CAPA

Move could lead to aero-political dispute; clubbing separate agreements into one and capping number of seats could also see spike in airfares

The Indian government's plan to revise air service agreement with UAE will constrain growth of Indian carriers and could lead to an aeropolitical dispute, aviation consultancy CAPA said today.

India-West Asia segment accounted for half of India's international air traffic in pre-Covid times. UAE is the largest market within West Asia, with around 60 per cent of traffic flow to and from the region.

India has separate air service agreements with Dubai, Abu Dhabi, Ras Al Khaimah and Sharjah. A media report today said the civil aviation ministry is planning to merge it into a single agreement and cap the number of seats available to Indian and UAE carriers. This would lead to a reduction of flights being offered by UAE-based airlines and would increase fares, the report said. A decision to revise the agreement has to be mutually agreed upon by both parties.

In a tweet, CAPA said it would be a bold step if the government is indeed considering a  revision in the air service agreement. However, the policy is unlikely to be implemented, the consultancy said.

"It would not only lead to an unnecessary aero-political battle, but would have repercussions in the bilateral relationship beyond aviation. Market access is connected to broader economic, trade and investment issues," CAPA said.

"From the UAE side, Emirates, flydubai and Air Arabia would likely be most impacted. It is not even in the interests of Indian carriers, given that they too would exhaust their entitlements if seats are cut by 33 per cent based on pre-Covid operations," it said.

"India is an important market for flydubai and we work within the bilateral agreement discussed at a government level," a flydubai spokesperson said.

India has exchanged around 135,000 seats per week with Dubai, Abu Dhabi, Sharjah and Ras Al Khaimah in separate agreements. Pre-Covid, Indian carriers were utilising around 100,000 seats per week while the UAE carriers were utilising around 115,000 seats per week.

Both Indian and UAE carriers were fully utilising their seat entitlements on the Dubai and Sharjah routes. In the case of Abu Dhabi, Etihad was using 61 per cent of seats while Indian carriers were using only 35 per cent of seats. For Ras Al Khaimah utilisation of seats from the UAE side was zero and it was 26 per cent from the Indian side.

"Slashing the bilateral entitlements to the Gulf may help Indian airlines get a bigger piece of the pie when it comes to traffic to Europe/US but this will require significant investment in widebody aircraft. The Gulf routes are bread & butter routes for many airlines. A case in point is Air India Express, which primarily flies these routes and is up for sale along with Air India.

Any such move to curtail bilateral entitlements has a direct impact on the value of Air India Express," said Vinamra Longani, head of operations for Sarin & Co, a law firm specialising in aircraft leasing and finance.