Aviation is booming in India:
- Big orders for planes—Air-India (AI) - 470, Indigo Airline (IA) – 500, plus more. The total number of Indian planes will more than double to over 1,800 by 2035.
- Bigger airports, with greater expanding passenger-handling capacities. Delhi – expanding to 100mn (million) passengers per annum (Mppa), Navi Mumbai - 25Mppa, Noida - 12Mppa and more. The top-6 airports can handle 200Mppa currently. This will grow to 320Mppa by 2025 and 500Mppa in the next few years.
- More passengers – about 350Mppa now, growing at around 15%pa (per annum).
Okay, more planes, more airports, more passengers…. what next?
The chocolate on the cake, of course—international travellers.
Over 55% of India’s international air traffic is handled by foreign airlines, notably the Middle East ones, led by Emirates. Indian carriers largely miss out on the long-haul traffic from India to USA and Europe.
Domestic air travel in India is very competitive, and airlines disappear or go bankrupt frequently - Deccan, Jet, Kingfisher, and Go First. Domestic routes in India have thin margins but steady volumes, while international routes are more profitable but more volatile.
Our aviation minister wants Indian carriers to seek international business and, to this end, India has refused Emirates airline’s request for a higher weekly quota of seats, and United airline’s request for a code-sharing arrangement. Indigo is starting direct flights to East Africa, Central Asia and Southeast Asia. Akasa will start international flights after being in service for barely a year.
But India doesn’t have many long-range wide-body planes. Out of 470 planes ordered by AI, only 70 are wide-body. None of IA’s 500 planes on order are wide-body. However, airlines are taking some wide-body planes on short leases.
The big move by the government is the plan to make India a hub for air travel, competing directly with Emirates, Etihad and Qatar.
Does this make sense? Let’s look at some key factors.
The first is location. Here, India is well positioned, as this chart shows.
Clearly, both Delhi and Mumbai are very well positioned on the global map, and can offer direct flights to major cities with pretty much the same duration as Dubai does. Even San Francisco is about the flying time away from Del/ Mum as Dubai is. Though Dubai is closer to Europe than Del/ Mum, it is further away from major destinations in the Far East and Southeast Asia.
And, of course, Indians going abroad, NRIs and Indian diaspora would find it much easier to use hubs at Delhi or Mumbai than fly via Dubai.
Next, comes costs.
The very first one—cost of the airplanes—is the same for carriers from the Middle East and India. Indian carriers have been buying in bulk-500 planes at a time-to get the best discounts on list prices. No disadvantages here.
Next, comes the costs of flying the planes, other than fuel cost. Indigo’s management runs a very tight ship, and cost per available seat KM – (CasK) - (minus fuel) is of the order of 3.5 US cents, a very good number. When fuel cost is added, CasK climbs to about 6.5 US cents, which is still comparable to that of major international low-cost carriers.
On the cost side, Indigo benefits from comparatively low staff costs. For instance, starting salary for Indigo’s cabin crew is less than half of that of Emirates. However, aviation fuel is taxed fairly heavily in India, and fuel for international flights costs US$0.82 at Mumbai, compared to about US$0.60 at Dubai.
(Disclaimer – I will not swear to these numbers being the latest and totally accurate, but I think they are good ballpark numbers, close enough for the purpose of this article).
I must mention that I have been mentioning Indigo because it is India’s No. 1 airline, with a market share of about 55%. The three airlines in the AI group jointly have about 25%. Hence, AI and IA will largely represent Indian carriers in the years to come, especially in view of their huge expansion plans. However, AI hasn’t fully got its act together yet; hence, it is unfair to delve into its cost structure right now.
Bottom line—India has the components needed to expand its airline business, and Indian carriers can live up to the challenge, especially if the government blocks out further foreign competition (which it has) and eases up on the tax of fuel (which has begun to happen).
Question is: Is all this worth doing?
Let’s set aside the hype about “fourth-largest economy, burgeoning middle class, increasing spending power” and all that, and just look at some core commercial issues:
- Aviation is booming worldwide and a lot of the growth will be in long-haul routes, as evidenced by moth-balled A380s being pulled back into service by Emirates and Lufthansa.
- There is a large, and growing, chunk of inherent international aviation business in India which is mostly going to foreign carriers. Indian carriers should get this business.
- Each additional airplane is estimated to generate 100-120 direct jobs (crew, support staff, etc.) plus twice as many indirect jobs (tourism, aircraft maintenance, etc.). We need these jobs.
- Delhi can be more than just a transit hub. Enticing destinations are close by—Delhi itself, Taj Mahal—Agra, Rajasthan, Kashmir, Varanasi, and more—ideal for short breaks between long-haul flights. Short-stay, stopover tourists are affluent high-spenders.
- India has deep enough pockets, and wide enough spaces, to build greenfield airports. Many other countries can’t do this, especially when the world seems to be heading into a recession. This is a good time slot to expand and fill gaps.
Caution – other airlines are not sitting still. Turkish airlines is expanding massively, and so is Emirates. The market won’t wait forever.
Two big questions remain:
- Will passengers fly AI instead of Emirates/ Etihad/ Qatar? AI has a long history of bad service, and recent incidents of unruly, and apparently unchecked, passenger behaviour, have not helped erase long-standing negative opinions.
- Will people like to fly long distances in cramped three + three single-aisle planes with limited toilets (which become filthy very fast)? Where are the large, comfortable, multi-aisle, long-haul planes?
All said and done, it is good to see that the government and carriers have made moves to seize an emerging opportunity. The catch lies in the execution of these plans. The flying public will wait and watch, examine and evaluate, before deciding whether this ‘India’s hub’ concept really works for them.
Yes, time will tell.
(Deserting engineering after a year in a factory, Amitabha Banerjee did an MBA in the US and returned to India. Choosing work-to-live over live-to-work, he joined banking and worked for various banks in India and the Middle East. Post-retirement, he returned to his hometown Kolkata and is now spending his golden years travelling the world, playing bridge, befriending Netflix & Prime Video and writing in his wife’s travel blog.)
Our hubs are also like railway platforms. Only a handful of shops selling goods at exhorbitant prices. Compare Delhi, Mumbai and others with Dubai or Singapore. Until and unless our airports are upgraded and facilities introduced people will prefer Dubai or Singapore