Saturday, January 30, 2010

Air India Considers Switch From Frankfurt

Saturday, January 30, 2010

Air Transport

Aviation Week & Space Technology Feb 01 , 2010 , p. 52
Neelam Mathews
New Delhi

Air India has second thoughts barely a year after establishing its European hub in Frankfurt
Printed headline: Hub Hesitancy

High airline user rates at Germany’s big Frankfurt airport have sent Air India scrambling for a less expensive European and North American hub, but airport and airline executives warn the long-term costs of any such move are likely to outweigh any short-term benefits, especially after it joins the Star Alliance airline network.
Air India headed for the heart of Europe when it made Frankfurt a hub, but now it views lower-priced Dublin as offering a potentially better deal, even if it is on the periphery of the continent . Credit: FRAPORT

Air India (AI) is currently completing the membership requirements to join Star in December.

The Indian carrier established residency at Frankfurt (Fraport) barely nine months ago but is having second thoughts about a rate agreement it signed last December that says Fraport will increase its charges on a progressive scale up to 12.5% over the next two years.

“All our decisions need to consider cost effectiveness.” says Air India Chairman Arvind Jadhav.

“I wonder if cost effectiveness will be remembered once the market bounces back,” says a skeptical analyst. “AI has no long-term plan and sways with the wind.”

As the airline shops for alternatives, Croatia’s lower-cost airport in Zagreb has been considered. But it is Dublin that is emerging as the front-runner. Besides its lower rates, the airline’s management likes that the Irish capital’s airport allows U.S.-bound passengers to clear customs and immigration prior to arrival, thus avoiding long lines. But there is a drawback: Dublin is not served by most Star Alliance members. Air India has spent the past two years trying to become a member so its passengers can tap into Star’s network of flights to multiply their travel options.

Dublin’s rates may seem helpful for Air India ’s ticket sales since airport charges are passed on, but the airline will have to give up the advantages of passenger transfers as a Star member to get them, says a former senior official of the alliance.

Frankfurt is a major hub for Lufthansa, the airline sponsoring Air India’s Star membership. The two carriers share 326 code shares, including many on the 52 weekly frequencies Lufthansa makes to India and another 10 on outbound U.S. and European flights to Lyon, France; Amsterdam; Munich, Stuttgart, Dusseldorf and Berlin in Germany; and Denver, Washington, Los Angeles and Chicago. If a switch is made, Air India plans to continue some flights to Frankfurt, but an airline official acknowledges that passenger code-share options will be diminished.

The stakes are high for Lufthansa, too. India is its second- largest intercontinental market; the U.S. is its first. With affiliates Swiss and Austrian, it has 67 weekly flights that link India to hubs in Frankfurt, Munich, Zurich and Vienna. “India has become a core market for us, where we expect sustained long-term growth,” says Chairman/CEO Wolfgang Mayrhuber.

Binit Somaia, a South Asia regional analyst for the Sydney-based Center for Asia Pacific Aviation, advises Air India to bide its time. “Once it [AI] is part of the Star Alliance, it has the potential to establish a hub at other Star Alliance hubs, such as Vienna and Zurich, which would provide a wide range of connecting options. Frankfurt is not the only option.”

At Fraport, executives are at a loss to explain Air India’s long-term rationale. Ireland is geographically peripheral to Europe, says Ansgar Sickert, managing director of Fraport’s India office. Besides, relocation costs will be hefty, he adds.

While Frankfurt’s fees are higher, Dublin has had to compensate for tough times, too. A drop in traffic prompted it to raise fees, but airport officials point out that their $13-per-passenger charge is more competitive than the $17.60 average at other European airports.

Fraport executives cite reasons for fee hikes : About $1.4 billion annually is invested in modernization, which the airport expects to cover via increased traffic, airport charges and retailing, says Fraport Executive Board Chairman Stefan Schulte.

Air India executives want to renegotiate; Sickert says that will not work. “Fraport does not negotiate nor give discounts,” he says. “Our aeronautical charges are based on [aircraft landing] weight and passenger numbers.”

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