The curse of geography on Air India

International flights are regulated by a strange agreement, in which at least one end of the flight should be in the country that is the “home” of the airline. For example, Jet Airways runs flights along the Mumbai-Brussels-New York route, but is forbidden from carrying passengers solely from Brussels to New York (that market is a monopoly for airlines based in EU or USA). However, if Jet has flights from Mumbai to say Brussels and Singapore, it can carry passengers from Brussels to Singapore, since they’ll be touching the ground at Jet’s home country.

Secondly, airline ticketing is usually done on a “source-destination” basis, and not based on each leg. For example, the price of  a Brussels-Singapore ticket on Jet Airways has nothing to do with the price of Brussels-Mumbai and Mumbai-Singapore tickets. As far as the airline is concerned, all these are independent “markets”, and the price for Brussels-Singapore is set partly based on what other airlines charge for Brussels-Singapore (taking into account flying time, layover time and all that).

These two together give an undue advantage to airlines that are situated in countries that are “in the middle”. The best example for this is Emirates, which flies, on the one hand, to several destinations in Asia, and on the other to several destinations in Africa, Europe and the Americas. This allows Emirates to effectively aggregate demand from all these destinations and connect them up in the form of a hub.

For example, there may not be too many people who want to fly Bangalore-Venice. However, if you aggregate all destinations Emirates serves to the West of Dubai (in Europe, Africa, US, Middle East, etc.) there will be a lot of people who will want to fly from Bangalore to all these places put together. Similarly, if you aggregate all destinations in Asia, there will be enough people from Venice to fly to all these places put together and thus Emirates, by providing a hub, creates an effective market. This is what I mentioned earlier as the advantage of geography, of being situated “in the middle”.

Now, if Air India were to be profitable in the international sector, one way of doing so would be to create a “hub” in India, where Air India connects up passengers to the east to those in the West. While that sounds simple enough, what we need to see is if any place in India is situated conveniently enough to function as a hub. Now, look at the map of India, and see what is around.

To the north-east lies China. There is a lot of nothingness between India and the parts of China that generates high airline traffic (the coast). To the northwest, you have Pakistan, Afghanistan and barren republics of Central Asia. The “business parts” of Russia, again, are quite far away. To the South of India you have vast oceans, the south-east and west already have thriving hubs (Singapore, KL, Bangkok, Dubai, Doha, etc.) and India is again not well placed to compete effectively with any of them. I know this isn’t a rigorous analysis, but look in any direction, and you’ll find it hard to believe that there is reason enough for people living there to fly internationally using India as a hub.

This is the curse of geography that India suffers from, and there is nothing we can do about it, and this is something we need to accept. Given this scenario, the best airlines from India can do is to connect various places in India to places abroad where there exists a “direct market” (for example, Kochi-Dubai by itself is liquid enough so you can have Indian carriers operating that route). Thus, airlines from India can never aspire to achieve the scale and connectivity of an Emirates or a Malaysian. The sooner the airlines accept it, the better.

The moral of the story for Air India is that it should recognize this curse of geography and give up on its dreams of connecting the world. It should stick to connecting destinations within India, and “direct markets” from India  to destinations abroad.