'Govt's Policy Focused On Indian Carriers': CAPA CEO On Freeze Of Flying Rights

Sir Tim Clark, the president of UAE's national carrier Emirates, said last week that the group had not increased seats from India since 2015. This was despite India's economic growth during this period. Clark's remarks come amid increased airfares to fly internationally out of India and on domestic routes. 

Emirates, which operates only wide-body A380s and B777s, has flight operations in nine Indian cities and operates more than 160 weekly flights to India.

The Indian government last week also showed a red flag to US-based United Airlines to codeshare with Emirates on routes from India. Codeshare is an agreement between two airlines to sell seats on each other's flights and share the revenue earned on such tickets.

 The permission to codeshare was apparently denied as this is not covered under the traffic rights agreement between India and Dubai. United Airlines is flying fewer routes to India because it is not flying over Russia due to the ongoing conflict between Russia and Ukraine since February 2022. This means longer detours which are not economically viable.  

India is a lucrative market for the aviation industry and is likely to overtake the United Kingdom to become the third-largest air passenger market in the world by 2024. But there is a disparity between the demand and capacity in the international air travel capacity. 

According to aviation consulting and research company CAPA India, there are roughly 72 million international passengers in and out of India right now, while demand at this point is for around 88 million. Apart from the lack of flying capacity, there have been factors such as the Covid-19-induced lockdown and Russia's invasion of Ukraine that have been a cause of heightened airfares.    

Founder of The Core and financial journalist Govindraj Ethiraj spoke to CAPA CEO Kapil Kaul on the limited international air travel capacity and the growing demand. Kaul said that there has been a market freeze since 2015 and is likely to continue till next year. "During the period of 2015 to 2023, except for Oman and Saudi Arabia, we didn't give any bilaterals to foreign carriers. The idea was to let Indian carriers get almost closer to the entitlements that the foreign carriers are using," Kaul said.  

Here are some edited excerpts from the interview:  

The Emirates Airlines is asking for more capacity to fly into and out of India. The demand clearly is high and continuing to go up. But capacity on the international inbound and outbound is not catching up. So what's going on here?

Number one is that the traffic, the capacity is about 90% of pre-Covid right now. We're not exactly pre-Covid, but we are getting there. Out of that, you would expect about 55% share of foreign carriers, and about 45% of Indian carriers. We expect the capacity for FY2024 to be about 88 million for international. And if I break that into 55-45% break up, you will get almost 50 million for foreign carriers capacity and 38 million for Indian carriers capacity. 

In terms of traffic, we would expect the traffic to be 72 to 75 million for this fiscal, out of which 42 million would be foreign carriers and about 33 million plus would be Indian carriers. So the traffic is around 72 to 75 million and the capacity is around 80 to 88 million and the share of foreign carriers is 55% and Indian carriers is 45%. And the international air capacity out of India is 90% of pre-Covid.

How do you see other requests or demands made by carriers asking for more capacity, such as Emirates Airlines, which is perhaps the largest international carrier of Indian traffic out of India?

I'll give you a quick background to Indian bilaterals. It will be worth going a little prior to 2004. There are multiple phases in our bilateral regime because we don't have a policy framework which is a structured, cabinet-approved policy in the bilaterals. Prior to 2004, it was almost impossible to get bilaterals in India. So the market access was closed, we were one of the markets, which seemed to be permanently closed for market access. From the period between 2004 and 2008, we opened up very liberally across markets and geographies included almost an open sky with the UK except Heathrow. So we call it a near open sky with the UK and we signed an open sky with the United States. That was between 2004 to 2008. Very liberally we opened up. From 2008 to 2015, except the bilaterals that were given to Etihad and around 1000 seats to Emirates, we had an air freeze between 2008 to 2015. The freeze continues till now. 

The government's policy is focused on Indian carriers, focusing on Indian carriers increasing the international share. And during the period of 2015 to 2023, except for Oman and Saudi Arabia, we didn't give any bilaterals to foreign carriers. The idea was to let Indian carriers get almost closer to the entitlements that the foreign carriers are using. Between 2015 to 2023, we had a very major milestone, which was Air India's acquisition and the multibillion dollar investment by Tatas both in terms of upgrading the airline in terms of fleet. This further resulted in tightening of bilaterals because there was an entity which was going to invest billions of dollars into fleet, into modernising the airline. You wanted to primarily give them some room before allowing foreign carriers to access. 

Air India's acquisition directly or indirectly has resulted in further freezing of the bilateral regime in India. Now the bilateral regime has become so constrained that even when United is asking for a third country codeshare with Emirates, even though it's included in the bilaterals it's not allowed. Air Canada is asking for a similar arrangement with Emirates via Dubai, even though that's included in the bilateral. 

Basically what we are trying to say is that the bilateral regime is near frozen, the focus is on Indian carriers reaching a significant share internationally. Till at least mid of next year, I don't see this changing and it could be perhaps more than one year that the freeze will continue. 

Now, if you look at entitlements, what are the foreign carriers asking? Between Emirates which has not got an increase for the last 8 to 10 years, Air Arabia for 10 to 12 years, Qatar for 15 years, Turkey for closer to 15 years. And there are other carriers who will be looking for increased bilaterals, such as Singapore, Thailand, Malaysia, Hong Kong and China. The estimate for further requests by foreign carriers are to the tune of 150,000 to 170,5000 weekly seats is the current request by Middle East Asia, some parts of Turkey, Europe. Overall 150,000 plus seats is the ask by foreign carriers and we are good to see a near freeze at least till mid of next year.

You're saying that for a year or so don't expect anything. In a larger sense, it's still Air India that gets some kind of runway for growth and stability, then also don't expect anything.

Maybe it could be more than a year.

What does it mean for fares in a broad sense because that's been obviously the big problem for most travellers since fares are sky high now?  

There is a constraint right now because of the Russian air space, which is a critical crossing point between east and west. American airlines like the United can't fly to India. And they have to take a longer detour. The economics don't support it, the aircraft range doesn't support it. So, the Russian airspace freezing for most of the carriers except India and few other countries is creating this pain point which is elevating the pressure particularly to North America. And till that is not sorted out, you will see the easing up of fares will only happen if Indian carriers put in more capacity. So that's number one.

But in contrast, what was happening is because most of the European carriers particularly are seeing Air India, wanting to get the modern fleet modernising their products, increasing their direct connectivity across to Western markets. They have started increasing frequencies. You have heard Lufthansa doing Frankfurt to Hyderabad, Virgin Atlantic launched a flight to Bangalore, Swiss Air launching to Bangalore. You may see once the aircraft comes from Austria, you may see direct Vienna flights. You may see after the acquisition of ITA in Italy, flights from Italy to India. 

So I think it's a preempt to Air India getting more aggressive and taking a lion's share of India's market. Most of the European markets don't have a bilateral issue. So you will see Air France, KLM increasing frequencies out of India. So you will see the European carriers increasing frequencies and connecting to North American markets. Air India is supposed to get about 15 new aircrafts or wide-body, but you'll start easing from possibly next year.