A problematic hub

Strange ways of promoting Abu Dhabi, at the cost of Delhi

Abu Dhabi has sought to increase its airline capacity (called bilateral traffic rights) with India from 13,000 seats a week to 25,000 seats. Indian carriers want it to be raised to 55,000 seats; out of this, Naresh Goyal's Jet Airways alone has demanded 42,000 seats. If the civil aviation ministry agrees, several smaller Indian cities will get linked to Abu Dhabi. This will be bad news for the newly modernised airports in Delhi and Mumbai. People from other cities will have the option to fly to Abu Dhabi and thence to Europe, North America and Africa. Instead of Delhi or Mumbai becoming a hub for international air traffic, the business will go to West Asia, questioning the logic of making huge investments in the last few years in both the airports to augment capacity to meet the anticipated rise in traffic in the next decade or so. Delhi airport has serious ambitions to become a hub for the substantial traffic between Africa and China and also between the former Soviet Union countries and Southeast Asia. All its plans will come to nought if the civil aviation ministry increases the bilateral traffic rights. Naturally, the Delhi and Mumbai airports have opposed the move.

But the Airports Authority of India (AAI), a key stakeholder while deciding such bilateral traffic rights, has come out in support of the suggestion. Its chairman, V P Agarwal, told The Economic Times that this will improve the economic viability of many smaller airports. Of the 93 operational airports that AAI owns only nine are profitable. It has invested large sums of money to refurbish 35 airports across the country; this includes the ones at Kolkata and Chennai, which have been modernised at a cost of Rs 4,300 crore. Its view cannot be ignored by the civil aviation ministry. The larger concern, however, is surely the setback awarding such bilateral traffic rights to Abu Dhabi would be for the legitimate ambitions of India's two main airports to become a hub - since their doing so would have helped a wide range of business activities around them, with consequent economic gains for the country.

In contrast, an increase in the bilateral traffic rights will primarily help Jet Airways. It has argued that the traffic between India and West Asia is set to increase from 28 million per annum now to 45 million in six years' time, and that's why the bilateral traffic rights need to be increased. Jet Airways, which is in talks with Etihad of Abu Dhabi to sell a sizeable stake, can pick up passengers from Indian cities, carry them directly to Abu Dhabi and put them into onward flights to Europe and North America. Similarly, Etihad can feed its huge network in Europe and North America with passengers from Indian cities such as Amritsar and Lucknow. The airline that stands to lose the most is state-owned Air India because it will not be able to offer such direct connectivity from smaller Indian cities.

This also tells how ad hoc the whole process of deciding bilateral traffic rights has become. They are decided more by the lobbying power of the players involved rather than demand and supply or existing capacity. The right approach for the civil aviation ministry would be to focus on sectors that are running out of capacity, rather than on sectors where it is not fully utilised.