International air traffic from India is expected to grow by roughly 8 per cent every year till the turn of the century. While in 1993, India had seven million international air travellers, the figure touched 9.14 million in 1995 and is expected to touch 11.3 million in AD 2000 and 21.2 million by 2010. Says Michael Stein man, general manager for India, Sri Lanka and Nepal, El Al Israel Airlines: "We have great hopes for India, as it is a growing market." But growth apart, there is another reason why international airlines visualise India as a lucrative operation base. For, there is one fear they don't have: strong competition from the national carrier, Air-India (AI)—which has seen its market share dwindle from 42 per cent in 1981 to 21.7 per cent in 1995 (see chart).
Logically at least, AI should control half the market since bilateral agreements are hammered out on an equitable quid pro quo basis, with the national airline of one country being allowed to carry exactly as many passengers as the national airline of the other country. But AI has consistently been unable to claim market shares rightfully due to it. Take for instance two routings which have opened recently. South African Airways (SAA) started operations in March 1995, and today flies the Bombay-Johannesburg route twice a week and Bombay-Durban-Johannesburg once. Till last week, AI was flying Bombay-Johannesburg twice a week, till, sources say, poor load factors of 20-30 per cent forced it to fly once a week. In contrast, SAA had average load factors of 70 per cent last year. "I control over 60 per cent of this market," remarks Eugene Holm, general manager—India, SAA.
That would leave AI with less than 40 per cent. And on the Bombay-Tel Aviv route, where AI runs two flights a week, exactly what El Al runs, market sources say AI records load factors of less than 15 per cent, far lower than El Al, its only rival.
But all this may be merely a replay of what happened on the most popular international routing from India—the US. Says Gautam Chadha, chief executive of Discover the World Marketing and US Air's representative in India: "The three carriers—Delta Airlines, AI and United Airlines—which are allowed to fly nonstop on this route control only 40-45 per cent of this market. Even though the European and West Asian carriers can't fly non-stop on this route, they control more than half the market." And it's not just low load factors, but reduced frequencies that have caused the shrink in market shares. For instance, AI flies eight flights to Kuwait while Kuwait Airways flies 19. Similarly, KLM flew seven turnaround flights a week to Amsterdam, while AI started flying to Amsterdam twice a week via Frankfurt only a couple of months back. And for that matter, Gulf Air flies 42 flights a week out of India while Air India doesn't manage more than 22.
History could repeat itself several more times if the Government were to sign any of those 27 bilaterals pending with it. But surprisingly, despite these low market shares, AI still benefits monetarily. In 1993-94, for instance, it received Rs 110 crore as royalty payments from other international airlines, and the figure has hovered around the same ever since. That's because, under some of the bilateral agreements signed by the Government, the national carrier of the other country was obliged to pay royalty to AI if it did not utilise its rights to the optimum, but the other carrier did. And this is what has happened on practically all routings, as AI has been constrained by fleet limitations. So, AI has actually made money by not flying.
But with increasing flexibility in bilateral agreements and international airlines becoming disinclined towards the concept of royalty, the Indian Government may find the going tougher now, which in turn puts pressure on AI to get its act together. And what it primarily needs to do is expand its fleet strength—not an easy task considering the high cost involved and the Government's reluctance to take a decision in the matter ( see box ).
But on this count, AI seems to be doing something. While it had 26 aircraft earlier, it has wetleased five more over the last year, thus increasing its fleet strength to 31 which is still inadequate, since it currently serves 33 international destinations and 11 domestically. What might turn the tide in its favour is its plan to acquire 23 medium-capacity long-range aircraft (MCLR), and double its fleet strength. The merger of AI and Indian Airlines might help even further as that would increase the fleet strength to 75. As of now, however, better aircraft utilisation might be the answer, if opportunities aren't to go abegging.
