By: Shafeeq Rahman, Ph.D. a Delhi-based researcher
According to the latest released data for the financial year 2018-19 by the Indian ministry of civil aviation, Gulf countries make up 31.45 million (49.33%) out of a total of 63.55 million scheduled international enplaned and deplaned air passenger traffic in India.
The share of Indian airlines for passenger traffic between India and Gulf increased 44.42% in the year 2018-19 from the previous 39.36% in 2014-15, whereas Gulf-based airlines saw their share of passengers for the same route decrease to 55.57% from 60.64% in the aforementioned period.
The ratio of Gulf carriers mainly plunged due to the protective measures adopted by India thanks to its 2016 aviation policy which stipulates that no country within a 5,000 km flying distance from India will be allowed any extra seats unless Indian carriers exhaust 80% of the flying rights quota. This new policy has adversely affected the expansion plans of Gulf-based carriers as GCC countries mainly fall under this categorization.
Interestingly, the largest proportion of business, or 57.33% of the total for Indian carriers in scheduled international operations, comes from Gulf passengers. For the year 2017-18, the ratio of Gulf passengers out of the total is 34% for Air India, 92% for Air India Express, 78% for Indigo, 49% for Jet Airways and 66% for Spicejet.
Due to a large Non-Resident Indians, (NRIs) population across all the Gulf countries and the emergence of Dubai as a major transit hub and a place of celebration and shopping for Indians, a large proportion of Gulf air traffic comes to India from the UAE (60%), followed by Oman (11.19%), Qatar (11.03%) and Saudi Arabia (10.06%) during the year 2018-19. Among the top ten India's busiest routes, five comes from the gulf region.
Crisis brewing in India
Indian carriers are now facing a crisis.
Private carrier Jet Airways has suspended all operations since May 2019 due to unavailability of requisite funds.
Conflicts among board members surfaced in another Indian private airline, ‘Indigo’, while the main government-owned carrier ‘Air India’ is under a divestment scheme because of recurring losses.
Lower passenger counts are not the cause behind the crisis among these carriers, but rather revolve around internal mismanagement in dealing with the flow of funds among others.
Presently, the flying rights in capacity entitlement to Indian and Gulf carriers under the bilateral agreement are almost equal. Gulf countries have repeatedly requested to increase their flying rights to meet increasing demand but India has yet to show flexibility in the allocation of rights.
Slots vacated due to the suspension of services by Jet Airways has instead been re-allocated to the Air India/Air India express, leaving Gulf carriers out.
India’s FDI policy
India’s foreign direct investment (FDI) policy in the aviation sector is also protective limiting foreign airlines’ investment in the capital of Indian companies.
For operating scheduled and non-scheduled air transport services, up to 49% of their paid-up capital is subject to several restrictions.
Etihad had earlier acquired 24% stake in Jet Airways for $379 million in 2013 but has not increased its stake despite many rounds of discussion in 2019, which led to the demise of Jet Airways.
Emirates also denied media news about any intentions to purchase a stake in Air India and Spicejet, though code sharing agrements were signed..
A sector primed for growth
India is among the fastest-growing economies enjoying a burgeoning middle-income group giving the aviation sector the boost it needs to expand.
The aviation industry in India is also still under-penetrated where annual domestic seats per capita are around 0.10, significantly lower compared to developed countries such as 2.76 in the US.
The major scope for expansion lies in GCC countries where the largest 8.53 million NRIs reside and who frequently travel between India and the Gulf. Most NRIs come from remote areas where access to direct flights from their home to work destinations is rare. This connectivity gap can be filled by allowing more direct flights of Gulf carriers for Indian destinations. The emergence of Dubai and other cities in the Gulf as transit, shopping, and entertainment hubs also increases the demand for luxury flights.
Gulf carriers are the ones most equipped to fulfil this unmet need and demand as Indian carriers are better known for providing more basic services.
India can expand its aviation sector by adopting a freer air market concept towards foreign airlines, specifically for Gulf-based carriers.
Managerial crises and increasing loan burdens on Indian airlines imply that Indian carriers would simply not be able to meet the burgeoning international scheduled passenger traffic between Gulf countries. India must show flexibility in its new aviation policy to allocate more flying rights to gulf based carriers so that the unmet need can be fulfilled with the true spirit of open skies.
Shafeeq Rahman, Ph.D., is a Delhi-based researcher. His data-driven articles are published in the Diplomat, Huffington Post, Middle East Monitor, DailyO, and many national and international publications. He has over a decade and a half research experience in data analysis.