The Short Sighted Indian players Part II

Its strange as well as disappointing to note that the second part of this topic is being written 4 years after the first part. Strange because a lot of things have happened in this period and disappointing because the airlines have still not fully understood the market and as well as what they want after all this.

As far as the Indian Aviation sector is concerned, there are two different markets.
a) The domestic and Short haul Middle east and South Asian market.
b) The long haul European, Far East and American market.
The dynamics of these two markets interact with each other in a unique manner considering the demography of India and the presence of international hubs around the Indian Subcontinent.

Let us take for example, the market (a). This market mainly consists of semi skilled laborers travelling from rural India and middle class tourists making their first international trips. That means Low Cost model is the new Model-T in town. This is ably catered by our own Indian LCCs like Indigo, Spicejet, AirIndia Express as well Air Asia, Tiger Airways, Air Arabia etc from all Tier-1  and Tier-2 cities. Apart from this full service carriers (Jet Airways Air India and foreign carriers) too take a significant upper middle class travellers and business travellers to these destinations.

Secondly, on the market (b), most of the European carriers and Cathay Pacific, Thai Airways, Singapore Airlines serve almost all major cities in India. Emirates, Qatar Airways and Etihad too form a very significant part that they should've been the first I mentioned. The uniqueness is with the 4 carriers namely Emirates, Qatar, Etihad and Singapore Airlines. These airlines cater to market (a) as well as market (b) significantly. They have established themselves so much in each of the categories that it will be difficult to pull market share from them in a short time span. It would require a lot of patience, significant upfront investment in new routes, and sustained marketing and service to establish yourself.

The two full service Indian carriers namely Jet Airways and Air India started on this path and left it halfway through. Jet Airways technically having run a scissor hub out of Brussels(something I always lauded) was a great idea to start with and what was required was sustained marketing and perseverance to see off the worst of economic crisis in 2008-10 period. What was required was a route rationalization on the North American side of operations starting with reducing 2 daily service to 1 to New York area and catering to other markets like Dallas/Chicago/West Coast. Code sharing a lot of american destinations would've helped its case. Instead it started leasing out its 777s and focused more on market (a). That is LCC dominated and has already been decimated enough. It started going into a cocoon. Jet Airways, you need to identify yourself first and decide whom you want to cater to. And I think 9W has somewhat answered that question by tying up with Etihad. By this Jet-Etihad deal, all 9W is trying to say is "mate, I am not brave enough to play for the long-haul, but if there is enough market I am ready to play your sidekick".

With respect to Air India, the less it is written about the better.  Having an Indian hub for long-haul routes is one of the worst decisions ever taken and yet this still ranks way better to its other decisions. The Indian long-haul market is neither dense nor voluminous. It is distributed among the major cities and those are less in numbers. Who will be mad to choose an avg 2 hr flight to DEL, complete immigration and  transfer to international for a 14 hr (for North America) or 8 hr (for Europe) flight when they can do all this from their own city for a much less time. Bringing the 787s would not solve the problem entirely. AI cannot always depend on home passengers to fill in seats if it has DEL in mind. It needs to go out there and fight. Its international services need to be synchronized with each other. DEL-LHR, DEL-MIL, DEL-FRA if synchronized with DEL-HKK, DEL-BKK DEL-SYD and sustained with quality service could turn out to be gamechanger with 787s. Air India's market would be partial India partial hub transfer passengers that's the way you live in the aviation industry.

Both the carriers need to understand that if they want to cater to the Indian international market, an Indian hub has no place in the scheme of things. And if you are expanding, better have the guts and patience to weather the storm. 

The gulf partner

Its been sometime since I got time to write here. There were couple of reasons for this. The Indian aviation sector was for the best part of last 3 years engaged in what can one only call as an elephant spilling mud on itself. Simply put, one can say commercial aviation in India just saw almost everything that could go wrong. Typical union fights, management problems, market share loss leading to near bankruptcy, non payment of bills and salaries, cutting of important routes to come out of red, problem of plenty, competition from international airlines in traditional routes.... almost everything.

The one thing that showed positive indication was Indigo. It is in its own world. Running profitably, setting footprint internationally, placing order for more short haul Airbus workhorses. It has done well in the medium term and I hope for god's sake it continues to do so in the long term as well.

One other thing, and its about this I am gonna talk here, that caught my eye was the Jet-Etihad deal. By the time I am writing this, Jet has already come out of the red, leased out its long haul aircrafts and cut down operations, started cost cuttings across the board and down the pyramid and most importantly in the verge of clinching a credible foreign investor who can very well turn out to be a long-term partner. The facts till now has been that negotiations have been held bilaterally between the Indian commerce ministry and Jet-Etihad representatives and already Jet has sold its Heathrow slots to Etihad for $70 million.

Now what does each side stands to gain from this?

From the Jet side, they have been severely hampered in their international operations as of now with the suspension of lucrative routes like JFK-BRU-JFK, MAA-KUL etc. Its 777s have been flying in Thai's liveries and its A-330s too are having downgraded operations. It is in some serious debt but has managed well till now, never defaulting a bill or paycheck. But in the process, it has lost market share and revenue. Now it wants to scale up. But to come out of this tempest it needs the capital as well as a reliable partner to grow with. Already Jet and Etihad have been code-sharing for sometime and with the gulf carrier's cash reserve, it is only natural that the two are looking for a partnership. All that Jet is looking for as of now is to reduce the debt and slowly consolidate domestically at a time when Kingfisher is slowly being taken off in a stretcher. When its long haul aircrafts are back, it must have enough working capital to restart its North atlantic routes.

From Etihad's side the math is much simpler. It is not getting anymore penetration into the tier-2 cities and the only way to gain those traffic and match Emirates is to partner with an Indian carrier. Cities like Trichy, Madurai, Vizag, Lucknow, Amritsar, Coimbatore, Chandigarh, Nagpur etc are looking desperately at a one stop connection to North America. Jet can easily feed them to Abu Dhabi and Etihad will carry allover the world. I wont be surprised if Jet moves its international hub from BRU to Abu Dhabi and restarts one of its LHR slot and EWR service from there. After all, both have enough markets from Indian pax to run in parallel with Etihad  .

All this means, Jet is in no mood to go big international in the short-term and  just consolidate its domestic market. It needs to be seen what are its own plans with respect to Indian metro cities and North american connections.