Wow, India's Long-Haul Market Is About To Heat Up...
Air India’s privatisation continues to progress although at such a slow rate that both existing and potential new market entrants must be delighted. The rapid growth and development of the domestic market has received much attention in recent months and rightly so; but for Air India the real worry is more around the looming arrival of long-haul low-cost services to the market.
For many airlines long-haul services represent the profitable part of their operation and even allowing for all the inefficiencies of Air India their long-haul operations have been the jewel in their crown. So, just when you want to sell the business the last thing you need is a combination of increased low-cost activity, rapid internet penetration and an emergent middle class. Perfect timing Air India!
For many years international network development was limited from India as a mix of regulatory hurdles, boom and bust market growth and political uncertainty thwarted the best attempts of many to develop. The last two years have seen that change; the domestic market is now seeing record levels of demand, capacity is growing rapidly and increasing direct booking activity have created a market that has a pace of its own.
Our expectation is that the long-haul low cost will become the next battle ground, and whilst overseas carriers may cherry pick selected markets the opportunity for a locally based carrier appear significant. We looked at the ten largest long-haul markets from India and as the table below reveals the proportions of indirect traffic are high in many cases.
For six of the top ten markets, at least one in three bookings were via an indirect routing to their final destination and whilst competitive pricing may account for some of that volume it highlights the scale of the opportunity. The key question is, who would be interested in such an opportunity?
From a local airline perspective, a combination of the top ten largest markets appears to make a nice network of destinations; key European cities and Asia are certainly within the operating economics of a long-haul low-cost operation although North America with sector lengths of nearly fifteen hours may be a stretch too far.
The potential for low-cost long-haul services to North America appears strong, but quite how that market could be served is perhaps the challenge. As noted, sector lengths are long, and the market is potentially more than just the east coast opportunity with large diaspora opportunities throughout the United States and Canada. With a sector length of around nine hours a Delhi – Reykjavik service with onwards connectivity to the US and Canada would appear a perfect connection as the illustrative map extracted from the new OAG Mapper tool highlights.
With the concept of low-cost long-haul connectivity becoming increasingly popular the strategic attraction for a carrier such as Wow would be obvious. Facing increased competition from direct low-cost carriers in their home market of Europe – North America traffic, developing new traffic flows would make great sense for the airline just as the market reaches a point of maturity for such services.
For too many years, India has been a market of opportunity where rapid growth has been followed by either airline failure or regulatory hurdles frustrating growth. It would seem that recent changes in Government policy, increased internet access and the rapidly emerging middle class with disposable income may be about to lead to a dramatic change in the competitive landscape.
India and low-cost long-haul may just be about to witness a wow moment in market development and that will be good news for everyone, except perhaps Air India.