Air India’s protectionism could alienate the Gulf

Reuters/Amit Dave

Air India has finally cried “foul” on its Middle East counterparts. It has been a long time coming.

According to India’s national carrier, Gulf airlines have been hogging its rightful domestic traffic via “super hub” strategies, while chomping at the revenues of Indian carriers. 

This week, Air India’s new CEO Campbell Wilson called for a block on international airlines being given any new capacity to operate to India. Along with other local carriers, Campbell is seeking to level the domestic playing field.

• India’s airlines face fight for market gains from the Gulf
• India’s new budget airline to fly to three GCC countries
• India resists allowing Gulf carriers to increase air traffic to its cities

Such a call is a sign of India’s growing confidence in its aviation sector – but also a reflection of the need to protect its market.

Earlier this year, Emirates and the UAE authorities sought approval for a further 50,000 weekly seats between the two countries. That request was firmly rejected by the Indian government. 

Not a clear-cut case

As the table below highlights, Air India may have a point in a few select Middle East markets. However, the idea of Indian airlines being crowded out of lucrative routes between the Middle East and the sub-continent is not as black and white as the announcement would have us believe. 

For instance, in Saudi Arabia, Indian-domiciled airlines operate 59 percent of all capacity. Many of those services serve the worker market which favours local home-based airlines. In truth, this market has been of little interest to any Saudi-based carrier. 

In the coming years Saudi-based airlines may start to look for connecting traffic via their hubs in Riyadh and Jeddah. Meanwhile, Saudi’s brand-new airline Riyadh Air claims it will be a point-to-point carrier. Believe that if you will!

In most other Middle East markets Indian-based airlines have between a 40-50 percent capacity share. So, while these carriers are slightly disadvantaged at the moment, their position is hardly disastrous.

Indeed, given that most bi-lateral agreements between these countries allow for a 50/50 split of capacity from airlines in either country there is opportunity for further growth by Indian airlines.

So, what was the purpose of the Air India statement? Was it sabre-rattling or something else?

Air India needs 'feeding'

As anyone who has flown through Dubai or Doha will confirm, building a large international network and filling very large aircraft orderbooks requires international connectivity.

Air India’s issue is that every other airline has been eating its lunch for decades. It wants to put an end to that state of affairs and, in the medium term, even attract connecting traffic from the Middle East to its network.

Blocking the addition of new capacity makes sense from the current status quo perspective. However, in the longer term, Air India runs the risk of having no capacity itself to carry connecting traffic. 

Much of Air India’s current market is made up of labourers, friends and family travel, and student traffic. So unless Air India plans to move out of its traditional markets then it runs the risk of alienating a loyal customer base. That is hardly what you want to do when you are developing a business.

Middle East indifference

For the Middle East carriers, further capacity growth in India would have been welcome – especially in Dubai, as the two local carriers seek to fill every possible parking space at Dubai International in the coming years.

But India's rejection of the UAE's capacity request will not have come as a huge disappointment.

The Indian authorities have frustrated capacity growth for years so it is unlikely that Emirates chief Sir Tim Clarke was counting on more revenue from India in the next few years.

FlyDubai, however, could be frustrated as it looks to expand into secondary regional cities in India.

Air India’s comment on “no more inbound international capacity” may have been generic on paper but, make no mistake, the message was aimed at the Middle East and specifically the UAE. 

Unfortunately, the "law of unintended consequences"’" could well turn such a wish into a future problem for the airline and wider Indian aviation. 

This kind of divisive statement puts the Indian airlines on a sticky wicket, and a future PR spin on their story may be hard to play.

John Grant is partner at UK consultancy Midas Aviation