The clamour for India

In February 2014, CAPA Aviation (a consulting firm) projected a combined annual loss of USD 1.2 billion for the three Indian carriers, Air India, Jet Airways and Spicejet. Go Air was expected to break even and Indigo would still be in profit but lower than what it earned last year. This has been the situation for the past many years. The government has poured money into Air India to keep it going, Spicejet saw new investors and Jet Airways sold stake to Abu Dhabi Based Etihad Airways. In an extremely price sensitive market losses of over a billion dollars can spell doom for the industry. But this has not deterred new entrant. Air Asia India and yet to be named TATA – Singapore Airlines joint venture will start operations this year. Apart from granting licenses to the new entrants the Ministry of Civil Aviation (MoCA) was also busy discussing requests from Etihad, Emirates and Qatar Airways to increase the seat allocation in their respective bilateral air service agreements (ASA).

This might seem contradictory, on one hand the Indian airlines are suffering losses of over a billion dollar and on the other hand there are new airlines starting operations and foreign airlines want a larger share of seats. Why would someone invest money and efforts in a loss making market? The answer is simple. Despite the losses India remains an attractive market, thanks to its demography. In 2013, Indian airports processed approximately 97.67 million passengers, generating total revenue of USD 17 billion. And that’s when the total air passengers were only 8% of India’s population. Emerging economies like India have huge potential for air travel and it is obvious that airlines see this opportunity. What is then the reason for losses of Indian carriers is another story and has been told many times over by many people.

The interesting bit is the clamour for Indian market by the three Middle Eastern airlines. Etihad, after buying out 24% stake in Jet Airways managed to get its seat entitlement increased from 13,700 to 50,000 seats per week under a new ASA.  The increase will happen gradually over a period of three years. Emirates pushed for a 37% increase in its share but the government allowed only a 20% increase of 11,000 seats per week. Another Gulf carrier, Qatar Airways wants a 200% increase. Decisions on Qatar airways is pending, but likely to be considered at some stage.

It is no secrete that the Gulf carriers have been carrying fifth freedom traffic from India and hubbing them through Dubai, Abu Dhabi and more recently Doha. And that is precisely the reason why all three are so eagerly pursuing the matter with MoCA. A quick glance at the passenger numbers will give us an idea of the scale of the market these airlines are trying to tap into.

As mentioned above the 2013 saw total passenger traffic of 97.67 million. Out of this 55.67 million (57%) were domestic passengers and 42 million (43%) passengers flew to international destinations. The total revenue contribution of domestic passengers was USD 3.7 billion, a mere 22% of the total revenue of USD 17.1 billion.

Just a tiny bit more

Out of the 42 million international passengers, 66% or 27.51 million flew to destinations in the Middle East, Europe and North America. These passengers contributed USD 9 billion (67% of total) in revenues on these sectors. The Middle East is the largest of these three markets with a passenger share of 40% and a revenue share of 22%.

The geographic location of the Middle Eastern carriers gives them an advantage of having a one stop connection to markets in the Gulf Cooperation Council (GCC) countries, Europe and North America. This is not only handy in offering cheap fares but also helps to develop their respective airports as international hubs. These airlines are in effect eyeing the huge intercontinental traffic that India offers. There are 27.5 million passengers, willing to pay USD 9 billion in fares to fly out of India.

The matter is not just restricted to the airlines. All the three airports are part of the larger government owned enterprise which owns them together with their respective airlines. A passenger is counted twice by an airline on a return flight, but counted four times by the airport, if he is changing planes. A transit passenger not only increases the passenger count but also spends anything between two to four hours in the transit lounge at the airport. Four hours is enough time to entice passengers to spend on snacks, drinks and high margin products in the Duty Free. In 2013 Dubai Duty Free posted total sales of USD 1.8 billion.

This is the reason the three airlines are clamouring for Indian passengers. However, it does not mean that the Indian aviation industry is doomed and foreign airlines will sabotage the market. The two new entrants will possibly have the options of going international without any cooling off period. The enhanced seat limits to the Middle East will benefit them. Air India will hopefully be privatized in the tenure of the next parliament and would end up in professional hands. The other low cost airlines would probably expand their international network or find their niche and allow the full service carriers to serve the long haul markets. All this is a lot of hope and probability, but a realistic one. Until then the passengers will keep on flying via the GCC hubs and contribute to their retail and passenger revenues. 

Bridging the city

The decennial growth rate of Delhi was registered at 1.98% in the census of 1911. A hundred years later the decennial growth is 20.96%. Though the growth has slowed down significantly from the peak of 53% in 1981, the population density of the city has almost trebled since then from 4,194/m² to 11,297 /m². Rapid growth over the past decades has put immense pressure on the resources of the city. Energy and water supplies are struggling to keep pace with the growing demand. The last decade of the twentieth century saw the opening up of the economy. Indian business flourished and foreign businesses invested heavily in the economy, which gave rise to the middle class. New money boosted consumption and created demand for personal vehicles among other things. The number of total vehicles registered in Delhi in 2011 stood at 7.43 million up from 521,457 in 1981. During the same period the number of private vehicle increased from 451,602 to 6.98 million.

Let there be space

Almost a quarter of the population of Delhi lives across the Yamuna (23.5%) in one of the densely populated parts of the city. The central business districts (CBD), which fall in central and south Delhi, force 707,503 (2012 estimates) vehicles to cross the eight bridges the city has, across the river Yamuna. The average time taken to cross these bridges is anywhere between 15 – 30 minutes. This not only leads to wastage of time but reduces productivity too. According to a 2009 study by Centre for Transforming India, an NGO, Delhi lost approximately INR 10 crore (USD 2 million, at INR 46 to a Dollar) every day in fuel wastage. On an average each vehicle lost 1.6 liters of fuel per day due to congestion and the exchequer lost INR 1.5 crore (USD 0.3 million) in fuel subsidies. Though there was no mention of the environmental impact of the wastage, it is safe to assume that carbon emissions increased significantly. Environmental pollution sparks other health related issues, especially among the young and old, shooting up health care costs and reducing overall productivity.

For a city of the size of Delhi, eight bridges is a joke. Similar cities around the world have anywhere between 12 – 30 bridges across their rivers. The Thames for example has 34 bridges in the Greater London area (including pedestrian bridges) while Chao Phraya in Bangkok has 14 (including two under construction) bridges. Delhi is in desperate need for new bridges to connect its densely populated east to the CDBs of South and centre. The pressure on bridges is not just from the city of Delhi but also from the satellite cities of Noida, Greater Noida, Gazhiabad and Faridabad. The pace of construction has been slow and the city got only one new bridge in the last ten years. The much publicized signature bridge is still under construction and reeling under multiple delays. The plans to construct a new train bridge replacing the 19^th century, “old Yamuna Bridge” are gathering dust for more than a decade now.

The Delhi Metro has made significant contribution in reducing vehicular traffic on Delhi roads and will ease the traffic more once the third phase is completed later this year. However the ever increasing population of the city will always keep its road infrastructure under pressure. The urban planners should wake up to the catastrophe looming on Delhi. More bridges will mean even distribution of traffic and hence removal of the artificial bottle necks.

Better connectivity across Yamuna will also create new CBDs. Access is one of the major parameters which attracts business. More connectivity across Yamuna will mean new opportunities for urban planners to plan and construct modern business centres for the city. This in turn will have an impact on the existing CBDs, in terms of possibly lower real estate prices and easing of congestion. The new business centres will not only attract corporate business but also generate local employment through associated services like restaurants, travel agencies, print shops, etc. The bridges not only have the potential to ease traffic congestion for commuters but can also prove to be a source of economic boom.