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Air India is the state-owned national carrier of India with its main hubs at Delhi and Mumbai airports. It established an international LCC subsidiary, Air India Express, in 2005 and merged with Indian Airlines in Aug-2007. Its network covers domestic and regional destinations, as well as international services to Asia, the Middle East, Europe, and North America.
Location of Air India main hub (Delhi Indira Gandhi International Airport)
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India's evolving global alliance mosaic: Star/SIA-Tata, oneworld/Air India-Qatar; SkyTeam/Jet-Etihad
Breathtakingly rapid changes in India are exposing a whole new panorama of the country's future international airline status. Just over two years ago, Star rejected Air India as a member, and the following year oneworld placed the admission of member-elect, Kingfisher on hold due to the carrier’s financial challenges. India's airlines were basket cases and its regulatory constraints promised to keep it that way. Today, thanks to some important (and long overdue) liberalising moves by the government, the country is shaping up as a potentially well balanced centre for each of the major BGAs.
Etihad clearly will have the first mover advantage, with its equity investment in Jet now having received regulatory approval to proceed, along with a substantial increase in seats in the Indian market. Meanwhile though, the long term pickings are so rich that other groups can no longer ignore the pressure to make a move.
All that is needed now is for India to remove its "5/20 rule" on international operations and - astonishingly - the country could leap from international dysfunctionality to commercial coherence in one bound. The impact for the national economy would be enormous.
But - there are one or two more barriers to be cleared. In India there always are. Perhaps this time the government will get it right, but don't bet on it just yet. And, although the alliances may be interested, they will remain wary of Indian pitfalls.
The structure of India’s airline market is expected to change significantly in coming months as carriers revisit their business models in order to restore industry viability. Nearly two thirds of the seats flying on domestic routes are on LCCs, one of the highest proportions in the world.
In this highly competitive system the six scheduled airlines have largely converged in terms of pricing and product. But given their significantly different cost structures, this situation is unsustainable for some, while presenting opportunities for others.
Over time the competing airlines will inevitably attempt to carve out more clearly differentiated market propositions, ranging from ultra-low cost to hybrid and premium full service. While that is high on the agenda, at the same time the merry-go-round of partnerships is starting to accelerate. All in all, a spicy cocktail.
Kenya Airways has shocked the market with a significantly worse than expected KES7.9 billion (USD92 million) loss after tax for the year ending 31-Mar-2013 (FY2013). The loss follows a FY2012 net profit of KES1.6 billion (USD18 million) and was driven by the effects of the European economic downturn and geopolitical uncertainty surrounding a number of general elections in Africa, which caused a significant drop in demand.
Kenya Airways is Africa’s fourth largest carrier and among the few consistently profitable airlines on the continent, but it issued a profit warning in Nov-2012 for FY2013, flagging its half year loss would be followed by modest full year profits which would be less than 25% of the FY2012 profit.
While the second half of the financial year was stronger, as expected, it became clear that the revised target would not be achieved when Kenya Airways reported flat demand numbers for 4QFY2013 and the KES5.53billion (USD65 million) losses in the first half would not be recovered.
This is the second in a four-part series of extracts from the 200+ page annual India Aviation Outlook Report 2013/14. The first extract looked at the changing dynamics of the airline sector on both domestic and international routes.
This second part looks at the policy vacuum that persists in India and the harmful impact of this neglect on the viability and development of the sector.
The third part will address key issues in airport and airspace infrastructure while the final extract will consider this year’s outlook for traffic, capacity, yields and airline profitability.
The Singapore-India market is poised for a modest increase in capacity, driven by further expansion from the Singapore Airlines (SIA) Group made possible by the recent signing of an expanded bilateral between the two countries.
The updated air services agreement only increases the previous capacity allotment for Singapore-based carriers by 10%. But SIA will take whatever it can get as Singapore-India is an important and generally under-served market. Incremental increases are typical with the India-Singapore bilateral, which has been updated several times in recent years, although Singapore would prefer a much bigger and broader agreement.
SIA along with full-service subsidiary SilkAir and low-cost carrier affiliate Tiger Airways already account for over 70% of capacity between India and Singapore. Indian carriers do not require a revised bilateral as they were using less than 40% of the prior allotment. Indian carriers over the last year have seen their share of the market decrease and may see their share drop further by the end of 2013 as the SIA Group again boosts capacity to India.
In this second extract from the CAPA India Aviation Outlook 2013/14 we look at the growing challenges to flag carrier Air India’s business model.
A combination of stronger Indian competitors as a result of foreign airline investment, the growth of LCCs, the opening up of the international market in the form of bilateral liberalisation and the changing nature of global alliances, will impact each of the three key areas of Air India’s operations – long-haul international, regional international and domestic – each of which we will consider in turn below.
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