The Europe-India aviation market: new opportunities and potential riches

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As India’s aviation policy has opened up over the past four years, European airlines have finally begun to achieve more market-oriented capacity levels, and to gain access to new gateways. India, with its enormous human resources and wealth, not only offers remarkable potential as a market in its own right, but also sits astride major routes to the Far East. Were it not for previous governments’ restrictive aviation policies, India would also be a major distribution hub, a potential it carries, once its chronic infrastructure shortage is eased.

The features of a closed market, as India previously was, include gratuitously providing high yielding traffic for sixth freedom carriers, who, in a capacity-limited market, were able to offer a good quality of service and a wide range of destinations over their hubs. Thus, for example, a little over two years ago there was no non-stop service between the US and India; today there are 42 services a week, by Indian and US carriers.

This aspect of India’s liberalisation has been a mixed blessing for European airlines. In a heavily regulated regime, Lufthansa, British Airways (BA) and Air France all profited from this market profile. At the same time however, growth in the international market is opening up new opportunities, to replace the dilution of this advantage.

International Passenger growth to/from India

Source: Centre for Asia Pacific Aviation and Airports Authority of India
Note: Financial years to 31-Mar

As new gateways open up in India, the variety of service combinations possible over their European hubs improves, helping them maintain an edge. Lufthansa, the biggest of the European carriers in the Indian market, has a relatively comprehensive network from six (shortly to be seven) gateways - Mumbai, Delhi, Bangalore, Hyderabad, Chennai and Kolkata - with 49 weekly frequencies.

The UK, with its large non-resident-Indian (NRI) community, has experienced strong service growth since bilateral liberalisation was introduced. As a result of liberalisation of the UK-India bilateral agreement, weekly non-stop services between the two countries have increased from 34 per week in Oct-04 to 107 times weekly today, operated by 4 carriers (British Airways, Virgin, Air India and Jet Airways, soon to be joined by a fifth, in Kingfisher Airlines).

BA’s service frequency will have grown from 19 times weekly in Oct-04, to 48 by Oct-08, and India will be its largest market outside of North America. Meanwhile, the Middle East short-haul market is burgeoning and Gulf carriers are also quick to expand their hub networks to incorporate Indian points; Emirates for example will operate to ten points in India, with 105 services a week by Jul-08.

European Airline Market shares, May-08
Source: Centre for Asia Pacific Aviation and OAG

An attractive feature of the Indian market is its still-high proportion of premium traffic. Following All Nippon Airways’ launch of a successful all-business class service between Narita and Mumbai in Sep-07, which was recently increased from 6 times weekly to daily, Lufthansa will introduce the first longhaul international service to Pune, near Mumbai, in Jul-08. This too is an all-business class service and will bring Lufthansa’s weekly frequencies to 55.

Carriers like Finnair too experience good yields; over 50% of traffic on its Helsinki route are business travellers and Finland will seek an increase in the current 14 weekly services permitted to each side at bilateral discussions scheduled for Aug-08.

As the fledgling Indian airlines spread their wing into longhaul operations, they are, of necessity, introducing innovative ways of achieving competitiveness.

Privately owned Jet Airways has established a European hub at Brussels, connecting Delhi, Mumbai and Chennai on the one side, to New York JFK, Newark and Toronto. These operations make use of the liberal access provisions available through the Belgium-US open skies agreement (and the absence of opposition from a protective national flag carrier). Jet is also reportedly considering using Milan, if Alitalia withdraws from Malpensa, voluntarily or otherwise.

The other high profile private new entrant, Kingfisher Airlines has also apparently been in discussions to set up a hub in Madrid. Iberia has no Asian services and there are considerable complementary route options.

Air India, one of the world’s longest standing airlines, is however lagging the field, as it considers hubs in either Munich or Vienna. Struggling to adapt to the increasingly competitive environment and the challenges of merging with government-owned sister company, domestic Indian Airlines, it has yet to show its full potential. It will take many more months before it emerges as a valuable partner to the Star Alliance, to whose membership it has been invited. As Jet and Kingfisher expand, they will become much more attractive to the global alliances, offering significant challenges to Air India.

Although domestic growth is now slowing, international traffic to/from India looks set to achieve double-digit growth for several years to come. The Government has shown its willingness to enter into increasingly liberal bilateral agreements and an array of foreign carriers are positioning themselves to compete for a share of this lucrative market.

The battle for position will be intriguing. Air India, Jet Airways and Kingfisher Airlines between them have 112 widebody aircraft on order, scheduled for delivery over the next 5 years and Europe and North America are expected to feature strongly in their network expansion plans. And, as partnerships - and even merger activity - grows, these home grown products will become increasingly attractive.

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