The issue of bilateral air rights has cropped up again as airlines approach pre-pandemic capacity.
The last week has seen plenty of headlines of airline CEOs asking for more access to the Indian market. In particular, airlines want the government to increase or even remove weekly seat limits placed in bilateral air service agreements (ASA) so that carriers from both sides can stage as many flights as demand warrants. However, India has been historically opposed to such a deal and has repeated the same tune this week too. Let’s dive deeper.
The Indian government’s reasoning for keeping restricted ASAs is simple, promote home airlines and allow them time to increase their market share. While this logic was previously accepted, reluctantly, the recent massive increase in the fleet size of Indian carriers has foreign airlines clamoring for more access again, fearing they will lose their market share and be left behind. However, on some routes competitiveness is not the issue, it’s the sheer scale of demand.
Take India to Dubai or Singapore. Airlines on both sides have exhausted their allocations under their ASAs, meaning new routes will have to come at the cost of reducing others. Moreover, it shuts the door for new airlines to join the fray too. Akasa Air CEO Vinay Dube has already said his carrier’s first destinations are likely to miss out on the lucrative Dubai and Singapore markets, per the Economic Times.
Photo: Akasa Air
India argues that the hub status amassed by foreign airlines, namely those in the Middle East, allows them to fly passengers globally and undercut domestic airlines on price. Civil Aviation Minister Jyotiraditya Scindia revealed his goal and the current state of the market in a statement to the Economic Times, saying,
“We want Indian airlines to have their wide body fleet so that Indian airports can develop their own hub. We have 86 international carriers coming into India and only 5 Indian carriers taking people to international destinations outside India. These 5 carriers that fly overseas hold only 36% market share. We have to look at increasing international to international traffic.”
Protectionism or in the broader interest?
Some have termed India’s tactics protectionist and preventing competition to help Air India and others succeed after decades of neglect. With 470 aircraft on order for the flag carrier, including 70 widebodies, the airline is set to add a slew of new routes internationally and rapidly reclaim the market for home airlines. While this would correct the numbers, will it help passengers?
Emirates CEO Sir Tim Clark made it clear that in addition to foreign airlines, Indian consumers would take the brunt of the absence of competition. Indeed, as flight rights reach full capacity and demand is yet to reach pre-pandemic levels, fares on international routes could quickly increase, locking out new flyers and forcing millions to shell out more each year.
Photo: Rebius / Shutterstock
Opening the market would mean Indian airlines would certainly lose out, at least in the short term. However, others like IndiGo and Akasa also want to see an increase in bilateral rights since they are unable to fly to popular short- and medium-haul destinations like the UAE, Singapore, Indonesia, and Turkey. With lower fares and more routes on the table, preserving rights for full-service carriers is a tough argument.
But when looking at the long-haul market, things change quickly. Flights to Europe and North America are dominated by Middle Eastern giants like Emirates and Qatar Airways. Even carriers from the two regions struggle to compete with these airlines’ dominance, leaving little room for Indian names. For Air India to succeed, it will need all the help it can get, and establishing new direct long-haul links is important for the market too.
As the Indian government walks the difficult tightrope between opening the skies and trying to secure a long-term, well-connected market, it will be crucial to see how the market develops in the next few years.
What do you think about the Indian government’s restriction on increasing bilateral flight rights? Let us know in the comments.
Source: The Economic Times