Indian sky’s the limit for Qatar Airways

The airline is pinning its hopes on the country’s hyper-competitive domestic aviation market to see off global rivals Etihad and Emirates

When Qatar Airways announced a few months ago that it was not interested in buying the beleaguered Air India, which the government tried and failed to privatise, many read it as a sign of the Gulf carrier’s lack of interest in the country’s domestic aviation business.

But last week, Qatar Airways Chief Executive Akbar Al Baker quelled any doubts about his ambitions with the announcement that the airline will launch a full-service carrier in India and file its application with the government soon. Speaking to journalists on the sidelines of the annual meeting of the International Air Transport Association in Sydney, Baker gave out some more details: the board of the airline would be headed by Indians and the carrier will be funded by the Qatar Investment Authority, the sovereign wealth fund of the state.

India had invited Qatar Airways some years ago to take advantage of its liberal foreign direct investment (FDI) regime and invest in the country. India allows 100 per cent FDI in aviation, but restricts the stake of a foreign carrier to 49 per cent. The rules, however, allow a sovereign investment arm to invest in the remaining equity. Both AirAsia and the Singapore Airlines have been granted permission under this policy.

So why is Qatar Airways so keen to enter the hypercompetitive domestic aviation business now? The answer lies in the international arena where the three big carriers, Emirates, Etihad and Qatar Airways, are fighting to dominate the West Asian skies. Emirates, which controls the largest international hub in the region in Dubai for passengers to and from Asia, south east Asia and Australia en route to the US, Europe and Africa, is now being challenged by both Etihad (via its gateway in Abu Dhabi) and Qatar Airways (via Doha).

The battle is getting intense even though many West Asian states have blocked the entry of Qatar Airways into their air space due to sanctions against the state. With a fleet of 200 aircraft, Qatar Airways flies to over 150 destinations worldwide and is closing in on Emirates which flies to 155 destinations but has a much larger fleet of 250 (it has more wide-bodied aircraft). Etihad, despite its various bad investments in airlines that have gone bust, is also giving a tough fight. It currently flies to 115 destinations with a fleet that is half that of Qatar Airways.

In this three-way battle, India is seen as a high-growth market to feed their hubs; already 40-50 per cent of the passengers to and from India use the three West Asian hubs to fly to the US, Europe and Africa.

In this game, Emirates and Etihad (which has a 24 per cent stake in Jet Airways, the largest international carrier in India) are far ahead of Qatar Airways. This is because the Indian government has not been as liberal to Doha as it has been to Dubai and Abu Dhabi in allowing seats to fly to and from India as part of the bilateral agreements.

So, Qatar Airways is the smallest amongst the big three, in fact even smaller than Air Oman and Air Arabia in terms of its share of the international passenger market to and from India. Between January and March this year, Qatar Airways was fifth in the pecking order amongst West Asian carriers in terms of market share (3.1 per cent), well behind Emirates (8.9 per cent), Oman Air (3.3 per cent), Etihad and Air Arabia (3.2 per cent each).

By passenger share (to and from India), though, Qatar is the fourth largest with a 5.5 per share, bigger than Saudi Arabia or Oman. But compared with the Emirates, which has a 30.2 per cent share (which include passengers who fly on Emirates and its subsidiaries like Air Dubai as well as on Etihad and Indian carriers) it is still minuscule.

The bilateral agreements appear skewed in favour of the United Arab Emirates. Based on data till last year, the weekly entitlement of Qatar at 24,292 a week (plus additional 2 per cent) is half that of Abu Dhabi, lower than Oman and smaller than Dubai, which has 66,504 seats a week. Qatar has exhausted its entitlements long ago and has been negotiating for more, but so far without avail. It flies only 102 services a week to India compared to 204 by Dubai and 194 by Abu Dhabi carriers.

Qatar has asked the Indian government to increase its quota to 66,374 (it has not got an increase after 2009) and permission to fly into seven new cities from 14 currently. Yet the request, which was made in 2016, is still being considered by the government.

The problem, say aviation experts, is that Indian carriers have only exhausted 63 per cent of the seat quota to Qatar, but have nearly exhausted the enhanced quota to Dubai. “There is a justification to increase seats to Dubai because both Indian carriers as well as Emirates need more, but that is not the case with Qatar. Similarly, with the increase in seats to Abu Dhabi, there is high unused capacity from the Indian side,” says an aviation analyst.

For Qatar Airways, setting up a domestic carrier mitigates the need to depend on long and arduous negotiations for bilateral quotas and gives the airline a shot at closing the gap with Emirates and Etihad in the Indian market. Qatar Airways can utilise the over 40 per cent seat capacity that is lying unused under the bilateral from India and press in more flights. Even if it was to get permission for more seats as Qatar has demanded, having a domestic operation will ensure that its business plans are not tied to Indian carriers exhausting their quotas. At the same time, a domestic carrier will give them the flexibility to quickly start operations to fly from any city in the country to Doha and respond to competition from Emirates and Etihad (which has Jet Airways) quickly rather than wait for permission under the bilateral negotiations.

Many feel Qatar Airways’ entry into the country is well-timed. Both Jet Airways and Air India are dealing with financial stress and that gives the new airline an opportunity to make a dent in the market if they can offer a superior service model.

If Baker’s initial statements are anything to go by, he is planning a big bang entry into the country. The airline’s deep pockets and the financial muscle have already managed to rattle some domestic carriers. “As most of these airlines will lease aircraft from their own group, there is hardly any major investment which will come India’s way. They will also spend nothing on maintenance in India,” says a senior executive of a leading domestic airlines. “Also, why should we allow them to create a hub in their country at the expense of the ones in India?” Which means the Indian airline market can count on one thing: the airline representing one of the world’s richest kingdoms will have its work cut out in the world’s largest democracy.