Foreign airlines gain at domestic carriers' cost on overseas routes

Cutbacks on international flights by domestic carriers are likely to see their market shares falling as foreign carriers gain from the lower utilisation of bilateral rights on key routes.

Recently, for example, Gulf carrier Emirates announced that from February 1, 2009, it would increase weekly flights from 132 to 163. By doing so, it will oust national carrier Air India, which along with Indian Airlines and its low-cost subsidiary Air India Express, has 150-odd weekly flights to Dubai.

Before Emirates' expansion, Air India was the largest carrier operating between India and Dubai. Now, the gap between Emirates and Air India in terms of number of seats offered on the route will be even wider, since most of the Indian national carrier's Dubai flights are operated by AI Express, which uses smaller aircraft. Civil aviation ministry sources said Air India has already cut international capacity 20 per cent.

Emirates, which will see a significant increase in its India-Dubai flight by February 1 from just 77 flights at the start of 2008, is not the only example of a foreign airline gaining at the expense of an Indian one.

Jet Airways, India's largest private airline, plans to cut international flights 19 per cent in the winter schedule, Delhi-Hong Kong among them. Meanwhile, Hong Kong carrier Cathay Pacific has seized the opportunity from increased bilaterals on the route to enhance weekly flights from eight at the start of this year to the current 24.

Among other examples, British Airways launched a daily flight from Hyderabad to London and five weekly flights between Bangalore and London.

Recently, Scandinavian Airlines launched a tri-weekly flight from India to Copenhagen.

Overall, Indian carriers are utilising less than 40 per cent of their bilateral air service agreement rights, and foreign carriers like Emirates will be utilising more than 70 per cent. Cathay Pacific already utilises 100 per cent of its rights.

Of course, the slowdown has not impacted international carriers. Singapore Airlines, one of the largest international carriers to India, slashed weekly flights from 63 to 53 in the coming winter schedule, discontinuing its Amritsar flights, and taking seven flights out of Chennai and Bangalore.

However, experts said the rejigging of schedules will impact the Indian carriers much more than the international carriers because they follow opposite strategies.

"All these international airlines depend on hub traffic and Indian carriers depend completely on point-to-point," said Keyur Joshi, co-founder and COO of travel portal Makemytrip.

So, if Emirates has an indirect flight between Dubai and the US via India, only around 30 per cent of its revenues will come from the Dubai-India leg and the rest will come from the onward flight.

For Indian carriers like Jet Airways, most of the revenues come from India to a specific destination and not from an onward flight. Jet Airways has actually tweaked its India Brussels flights in such a way that there are now four flights to Brussels and only three flights onward from Brussels, against an earlier ratio of 3:3.

This was done because Jet's onward flight was attracting lower loads than the first flight. But since onward flights as a rule generate more revenue, net revenue in those indirect flights will drop as a result of this tweaking. In comparison, Emirates expansion of onward flights has been even greater, adding destinations like Los Angeles, Toronto, Sao Paulo, Cape Town and Guangzhou. Singapore Airlines has done the same.

"This difference in strategy is the result of a long-standing problem of the hub which is now showing up in the slowdown. All these airlines have hubs in their own countries, which gives them huge access to onward traffic. Indian carriers have to look at foreign hubs like Brussels in which they do not have any infrastructure or market, so they never get the benefits that a hub should ideally give them," adds Joshi.

The recent proposal for a transaction fee will tilt passenger demand even more in favour of the foreign carriers. Air India, Kingfisher and Jet Airways recently asked travel agents to levy a transaction fee of Rs 2,500-10,000 on international tickets, raising prices around 20 per cent. This at a time when British Airways announced a rock-bottom basic fare of Rs 90 from Hyderabad to London.

"The foreign carriers have been smart enough to stay out of the transaction fee. This will clearly turn customers towards them," said Ajay Prakash, general secretary, Travel Agents Federation of India.

Travel agents in India handle 80 per cent of international ticket sales of Indian carriers, 90 per cent in the case of Air India.