【Abstract】This paper details the changing dynamics in the Indian international aviation market by reviewing regulatory changes to India’s air transport market and examining international traffic trends.

【Key Words】India； Middle East airlines； Air India； India–Europe market

【作者簡介】周素萍，中國商飛上海飛機設計研究院。

1. Introduction

India is home to a sixth of the world’s population where over half of its people is under 25 years with more than two-thirds， under the age of 35 years， which indicates that air transport could be a major component of these young lives long into the future （United Nations， 2011）. Despite the economic slowdown in 2008-09， India has managed to remain stable and in post-recession （after 2010） the GDP was growing at 8.2% per annum. In 2011， the Indian economy overtook the Japanese economy by $0.02 trillion and has become the world’s third largest economy in terms of purchasing power parity， after United States and China （IMF， 2012）. O’Connell and Williams （2006） found that the propensity for air travel in India was 0.1 trips per person in 2006， which is a fraction of the global average of 2.0. Airbus （2012） forecasts have indicated that that the propensity for air travel in India will surge by 4.6 times by 2031 from its present position as more of India’s 300 million middle class residents and those who are more economically advantaged will begin to choose air travel over the train service （Forbes， 2007； Airbus， 2012）. Over the last number of years the international market to/from India has changed and evolved considerably and this paper aims to detail these changing dynamics in the Indian international market.

2. Regulatory changes to India’s air transport market

Hooper （1997） noted that the Indian civil aviation industry in its early days was the outcome of World War II excess aircraft， which led to ‘destructive competition’. JRD Tata， the pioneer of India civil aviation industry and founder of Air India， had to relinquish power of Air India， then the largest carrier， to the government when it nationalized the civil aviation assets in 1953. The Air Corporation Act of 1953 eliminated competition in Indian skies by creating two autonomous corporations； firstly Air India， which was initiated to focus on international operations while Indian Airlines （formed by merging eleven private players） created a total monopoly in the domestic sector which remained unchallenged till the beginning of the 1990’s. Sinha （2001） and Williams （2002） repeatedly argued that bureaucracy and regulation hindered India’s air transport market. World monetary bodies pressurised the Indian government to liberalise the aviation market and to allow the domiciled carriers to become privatised. In a crude attempt to revive competition， the government announced an ‘open sky’ regime， where scheduled ‘a(chǎn)ir taxi’ operators were allowed to compete with the nationalised carriers （Hooper， 1997； Saraswati， 2001）. Six new airlines entered the market thereafter， namely， Air Asiatic， UB Air， India International Airways， Delhi Gulf Airways， City Link Airways and Continental Air， but all ran into financial trouble and ceased operations within a short period – clearly showing that the problems remained ongoing. In the early 1990s， bureaucracy， inefficiency and unproductively were entrenched traits that resided within the governance of Indian aviation as evidenced by events such as the Government grounding of the entire A320 domestic fleet for a year and continuous labour disruptions. These industrial strikes provided opportunities for some additional private operators to enter such as East West， Jet， Damania and Modiluft – these new entrants were operating flights on 54 routes， reducing Indian airlines’domestic market share to around 70% （Williams， 2002）. Hooper （1997） documented that Indian Airlines incurred losses amounting to more than US$220 million from 1990-1994. In addition， the Indian government continuously reversed its aviation policies， which were designed as blueprints of legislative frameworks to shape aviation in India but the continuous changes made it extremely difficult for domiciled carriers to pursue long terms plans. Hooper （1997） highlighted this pattern by citing an incident whereby the government legislated that overseas investors could acquire a 40% equity investment in an Indian carrier， which allowed Jet Airways to receive a 20% infusion from Kuwait Airways and another 20% from Gulf Air in 1993， however due to policy reversals， it was forced to divest this equity by 1997.

Tight regulations in the domestic sector continued – the government introduced three different categories of routes which act as guidelines and these categories remain in-situ today as shown in Table 1.

Table 1： Categories of routes in Indian domestic market

CategoriesRoutes

Category 1

Routes connecting directlyMumbai- Bangalore， Mumbai- Calcutta

Mumbai- Delhi， Mumbai- Hyderabad

Mumbai- Madras， Mumbai- Trivandrum

Calcutta- Delhi， Calcutta- Bangalore

Calcutta- Chennai， Delhi- Bangalore

Delhi- Hyderabad， Delhi- Chennai

Category 2North East region， Jammu and Kashmir

Andaman and Nicobar， Lakshadweep

Category 3Routes which are not included in

category 1 and 2

Source： Ministry of Civil Aviation， 2011

Airlines operating scheduled air transport service on one or more of the routes under Category I， shall be required to provide such service in Categories II and III as indicated below：

（1） The operator shall deploy on routes in Category II at least 10% of the capacity deployed on routes in Category I and of the capacity thus required to be deployed on Category II routes， at least 10% would be deployed on services or segments thereof operated exclusively within the North-Eastern region.

（2） 50% of the capacity deployed in category 1 routes has to be deployed on category 3 routes.

（3） All scheduled carriers can operate to any destination within India as a subject to route dispersal guidelines.

However， there is no such minimum requirement criteria set for foreign carriers to operate international services into India. Private carriers are also prohibited from entering into international services as the regulation enforces that the carrier must have had 5 years of continuous domestic operations and have a minimum fleet size of 20 aircraft.

Despite the constraints， the domestic passenger market has grown considerably over the last decade as passenger numbers have increased from 13 million in 2001 to just over 61 million by 2010 （DGCA， 2011）. Data computed from IATA’s PaxIS database reveals that low-cost carriers had captured 50% of the domestic market by 2011， up from just 20% some five years earlier – this has been triggered by host of new entrant low cost carriers offering low fares， which created fare wars amongst the domiciled carriers. To highlight the level of ‘fare competition’， IATA （2012） reported that the average Indian ticket price is $95， which is around $11 short of the break-even fare. O’Connell et al （2013） investigated the core underlying problems facing Indian based airlines and found that restrictions on foreign ownership， outdated regulatory policies and overtaxed fuel， which in-turn were overlain by industry wide overcapacity issues were the principle contributing factors for the under-performing carriers. The authors estimated that the net losses over the past several years could have amounted to as much as $20 billion. More recently the Indian rupee has devalued by 25% from 2011 to 2013 and this structural shift has heavily impacted the cost base， as 70% of an Indian airline’s operational costs is dollar-denominated. Meanwhile additional variable costs are being levied as the Airports Economic Regulatory Authority （AERA） of India approved a 346% increase in charges at Delhi Airport， effective from May 2012， while Chennai and Kolkata have proposed a 118% and 242% increase respectively to fund their modernisation programs （The Hindu， 2012）. As a result all of the carriers in India with the exception of IndiGo are loss making. Figure 1 shows the net results of India’s airlines from 2003 to 2011 with the accumulated net loss for 2011 registering $2.4 billion， while only IndiGo recorded a net profit of $117 million in 2011. A whopping $8.3 billion in losses were racked up from 2006 to 2011 – with Air India alone losing $6.1 billion over this time period. This government owned carrier with a workforce of 27，000 transported just 13 million passengers in 2011 and the government aims to continue to protect the ailing carrier long into the future by investing $5.8 billion over the next eight years， with the ambition to return it to profitability by 2018 （Flightglobal， 2012）. Doganis （2013） responded by arguing that Air India typified the ethos of state owned carriers of bygone times as it was over-politicised， over-staffed and it had evident symptoms of low productivity， inefficiency， bureaucratic management， poor service quality， no clear forward looking strategies combined with slow and indecisive making response tactics.

Figure 1 Net Results of all Indian home carriers in （US$ million）

Source： Flight Global， 2012

3. International traffic trends to/from India

From an international perspective India has entered into Air Service Agreements （ASA’s） with 108 countries， each with varying degrees of restrictions on capacity entitlements， route schedule and frequency （Ministry of Civil Aviation， 2010）. Traditionally， the ASA’s were highly restrictive and national carriers enjoyed the monopoly of serving international routes. Renegotiations of the Air Service Agreements have taken place over the recent years and some liberalisation has transgressed as the private carriers were allowed to operate on international routes provided they operated on the domestic sector for at least five years. The international landscape was evidently changing and by 2013， there were 85 international airlines operating to/from India together with 5 Indian carriers that were conducting international services to over 40 countries. In April 2005， a landmark agreement was signed between India and the US when the bilateral ASA， which was originally signed in 1956 was replaced with an ‘Open Skies’ agreement. This agreement provided both countries with open access to all points within the two countries and virtual freedom to set fares and capacity. Also， in comparison to the previous agreement， the new agreement removed all restrictions on code-share and fifth freedom traffic rights. However restrictions remain which include： ownership and control； nationality； while access to domestic markets remains forbidden. Table 2 details India’s most important Bilateral Air Service agreements and these countries are responsible for most of the international traffic to and from India.

Table 2. Details of the Air Service Agreements for ten important destinations to and from India as of 2010

CountryPermitted routeAircraft typeFrequency

（weekly）Capacity

（weekly）Designation clause*

USAAnyAnyUnlimitedUnlimitedMultiple

UKAny AnySummer 49

Winter 56Summer 19，600 seats

Winter 22，400 seatsMultiple

Hong KongAnyAnyLimited

4 frequenciesLimitedMultiple

SingaporePrescribedAnyLimited Limited Multiple

MalaysiaAnyAnyLimitedLimited Multiple

MacauAnyAnyLimited

2 frequenciesLimited to 600 seatsDual

OmanPrescribed AnyLimitedLimited to 5，381 seatsMultiple

QatarAnyAnyLimitedLimited to 5，372 seatsMultiple

Saudi

ArabiaAnyAny Limited

31 frequenciesLimited to 8，500 seatsSingle

UAE

（Dubai）AnyAnyLimitedLimited to 29，100 seats

（Mumbai 7，299 seats； Delhi 4，559； Chennai 3，607； Kolkata 2，000； Kochi 2，785； Hyderabad 2，750； Thiruvananthpuram 2，000； Bengaluru 2，100 and Ahmedabad 2，000） Multiple

*Designation Clause： Number of airlines allowed to operate. Source： DGCA （India）， 2010

Apart from the US， the other listed countries in Table 2 all have restrictions on either capacity or on prescribed routes. In the case of Singapore and Oman， there is a prescribed route for operations. In the case of Macau and Saudi Arabia， there is a dual airline designation for Macau and single airline designation for Saudi Arabia， while all of the other countries have capacity limitations. Through an analysis of the top 20 international Origin and Destination （OD） Indian markets， which account for 80% of total international traffic， O’Connell et al. （2013） demonstrated that 16 ASAs restrict the number of points （at airports） to where airlines can operate to； 19 ASAs had restrictions on capacity； and most had restrictions on pricing. The Middle East primarily driven by the Gulf carriers has become a critical component of India’s international traffic as around 40% of the total international passenger traffic flows between the two regions， while around 7% is to/from UK and around 6.5% is to/from Singapore （DGCA， 2011）. India’s national flag carrier， Air India serves just 22 international destinations in 15 countries despite India having bilateral agreements with more than 100 countries.

Table 3 details the number of passengers between India and the rest of the world in terms of OD traffic flows. It shows the significance of the Middle East market as almost 15 million passengers were travelling between the two regions in 2012， an 81% jump in six years. However this growth has been slowing in recent years as India’s restriction in the bilateral Air Service Agreement and the capping of seat capacity is restraining the encroachment of the Gulf carriers – for example it does not allow the A380 to serve any Indian city. From India to the Middle East， the United Arab Emirates is the most preferred destination （45% market share）， followed by Saudi Arabia （22%） and Oman （10%）. The New York Times （2012） reported that over 5 million Indian citizens reside in the Gulf， which enhance the economic linkages and co-dependency between the two regions， while remittances sent home by migrant workers to India totalled $64 billion in 2011， making India the leading receiver of remittances in the world.

Table 3： Origin and Destination markets for India - 2006 vs. 2012

Regions20062012% Change

Middle East8，257，49314，976，46381%

Asia6，583，99211，178，19070%

Europe5，205，4135，945，10514%

North America2，573，4364，722，94384%

Africa671，1841，389，690107%

Australasia433，645939，429117%

South America36，89586，451134%

Total23，762，05839，238，27165%

Source： IATA Airport-IS database

The growth in traffic to Asia has been enhanced by the entry of Asian based low-cost carriers such as Tiger Airways and Air Asia. Analysis based on OAG database shows that these carriers have increased the daily scheduled seats to 1，482 to 12 destinations in 2010， up from just 320 daily seats in 2007. The unique differentiating feature of these carriers is their focus in offering direct services to secondary cities， which is winning market share as passengers do not have to transit through a hub. In Africa where the competition is weak and where strict regulatory constraints apply， Indian carriers have thrived， but as markets deregulate and competition intensifies， Indian domiciled airlines quickly become disadvantaged. Unlike other OD regions， Europe is an exception， for not having its OD traffic doubled， implying a possible maturity in OD traffic.

4. An analysis of the fall of Indian carriers from International markets

Figure 2 provides a snapshot of the international market share to/from India from 2006 to 2012. A closer look at Figure 2， illustrates a fact that Middle Eastern carriers have outgrown the competition， cumulatively the market share of Emirates and Qatar has evolved from 8% in 2006 to 16% in 2012， while in contrast Air India and Jet Airways have only managed to hold ground. Emirates overtook Air India becoming the dominant carrier in transporting International traffic to India， carrying 4.8 million passengers in 2012.

Figure 2： India’s International passenger market evolution （2006-2012）

Note： EK=Emirates， AI=Air India，9W= Jet Airways， IX= Air India Express， QR=Qatar Airways， G9= Air Arabia， SQ=Singapore Airlines， TG= Thai Airways， UL- Sri Lankan Airlines， LH=Lufthansa， BA=British Airways， SV= Saudia Arabian Airlines， WY= Kuwait Airways， 6E= IndiGo， CX=Cathay Pacific Airways.

Source： IATA Airport-IS Database.

5. Summary and Conclusions

This paper details the changing dynamics in the Indian international aviation market. The analysis shows that the underlying growth formula for the Middle East carriers on the Indian – Europe routes is their ability to penetrate into secondary markets both in India and Europe. Coupled with higher frequencies to a large number of destinations through a one-stop journey， superior in-flight products， major carriers in the Middle East have taken market share away from Air India over time despite the latter often offering the lowest fares on the routes.

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