India’s new dynamic

The entire country has been asking what the Jet-Etihad deal means for the national flag carrier. Some have gone as far as suggesting it is the beginning of the end for the flying Maharaja. They are right to be concerned.

While it is difficult to visualize Air India’s total demise, the carrier is in a perilous position. Its financials make Jet’s debt burden pale into insignificance.

Since 2008, Air India has lost some $6 billion, more than 80% of it on international operations. It has total debts of around $10 billion and even the $5.5 billion in bailout cash promised by the government for its troubled charge – it is expected to be handed over in small tranches through to 2021 – looks short of the mark when it comes to keeping Air India afloat.

It has also lost its position as India’s leading international airline. That honour is now held by Jet, which has 15.7% of India’s international traffic, compared with Air India’s 11.9 per cent. The State-owned operator has, embarrassingly, even been overtaken by another Gulf carrier, Dubai-based Emirates Airline, which now controls over 13 per cent of international traffic.

“While it is difficult to visualise Air India’s total demise, the carrier is in a perilous position.”

Things are going to get worse because New Delhi has just agreed to a massive increase in capacity rights between India and the United Arab Emirates (UAE), of which both Dubai and Abu Dhabi are members.

Current capacity of 13,300 seats weekly will nearly triple to 36,670 seats. Along with this, Air India will now have to fight the combined might of Jet and Etihad offering a massive global network through an Abu Dhabi hub, just three hours away from India. Both Emirates and Etihad also have applications on the table for even more seats.

Domestically, the landscape also looks grim for Air India. The deal could help Jet wrest back leadership in the domestic market, which it surrendered to IndiGo last year. In February, IndiGo continued to be the largest airline with a 27.4 per cent market share, followed by Jet Airways group (including Jet Konnect) at 25.4 per cent, SpiceJet at 20.4 per cent, Air India at 18.9%per cent and GoAir at 7.8% per cent.

For Air India it all adds up to the near certainty of further bleeding of its market share, both domestic and international. And it isn’t only about traffic between India and the Gulf. For example, more than 70 per cent of the passengers carried by Emirates travel to points beyond Dubai. Etihad wants to replicate that.

Air India’s chairman Rohit Nandan is clearly deeply concerned. “What has happened has happened,” he said. “But we want to bring it to the government’s notice that this (increases in traffic rights for Gulf airlines) should not be repeated. We are apprehensive that Emirates and other foreign carriers may push for more air capacity”.

Loss of traffic isn’t the only thing troubling Nandan. He believes there will be some viscious fare discounting as Etihad and Jet move to increase their joint presence on India’s international routes.

“It is imminent that they (Etihad) are going to unleash a price war with increased operations to India and we will have to live with it as India is a price sensitive market. However, it has to be seen how sustainable lowering prices for a long time would be even for competition”.

Right now, Air India and Jet Airways are heading in different directions and while Jet’s founder and majority owner Naresh Goyal’s cup us overflowing, the government-owned carrier, still floundering under bureaucratic control, is facing a mountainous challenge to haul itself out of the mire.
Ends.