Gaurav's Blog

Reverse hubbing?

 

 

 Air India is in the news for all the wrong reasons so often, that even when it does something really sensible, it goes virtually unnoticed. Take for instance, its decision to establish an operational control center at Dubai, with the reasoning that too many AI flights are bound for Dubai and it therefore makes sense to operationally manage them through a central network control from there. I believe this is very sound reasoning. I have been thinking about this for sometime albeit from a more commercial angle.

India is sandwiched between the heavyweight mega-hubs-The Middle Eastern trinity-Dubai, Doha and Abu Dhabi and the Asian quartets- Bangkok, Hong Kong, Kuala Lumpur and Singapore. These international hubs and their home carriers have been in the making for 20-30 years with oil money and the sub continental traffic funding the former while Asian tiger economies and Chinese growth, funding the latter. All of these have capacities above 50-100 million. A lot of silly money has been thrown on rearing the airlines to give them the scale and reach they have today. Infact, if you ask the network Planners from Emirates, such is their appetite for global dominance, they will tell you they are still not happy with the payload range of planes available to them today. For instance, they have not been able to dominate the Americas (US, Canada) to the extent possible; particularly the US/Canada West Coast remains virgin territory, as far as MEB3 are concerned. The airframe manufactures will tell you their great dilemma- on one hand, is this 1000 pound gorilla (or 3 gorillas), which is fortunately or unfortunately their largest customer today and on the other is the rest of the old world order. This 1000 pound gorilla is not shy of trumpeting its weight at the slightest of provocation, demanding aircraft designed specifically to offer payload-range solely to suit their network requirements.

But I digress from the topic I want to tackle in this note, which is reverse Hubbing.

Progressive liberalization of Indian bilateral air rights has ensured that even secondary cities like Jaipur, Lucknow, Chandigarh, Goa, Nagpur etc. are opening up to foreign carriers. Our Hubs, at Mumbai and Delhi, cannot at present handle traffic growth from these cities, and as a result, people are choosing to connect out of these International hubs outside India.

Given this scenario, does it not make sense for a carrier like Indigo or Spicejet to launch what I call 'Reverse Hubbing'? Let me explain:

Indian traffic is fragmented over 50 plus cities. India has 35 cities with over a million people that have an Airport that can handle Code C aircrafts. I talked about 7 hubs around us in Middle East and South East Asia. Multiply those number and you get 245 city-pairs. Not a small number. Multiple those by 4 daily frequencies in both directions and you get 2000 flights per day. That is not a small number either. Just as a fly Dubai, Air Asia, Tiger Air or Air Arabia can fly from their respective hubs at Dubai, KL, Singapore or Sharjah respectively to Lucknow, so can Indian carriers, as the bilateral allows that. Why not build operational bases in these 7 hubs and launch flights to all 35 Indian cities? The flight can be scheduled such that it originates at an Indian city to avoid violating the BASA, however, the operational base is used to rotate the aircraft between various city pairs. It is essentially a hub operation, but since it is outside the home country, I call it reverse hubbing. Very similar to what Ryan Air does, but EU is one single market, unlike the above.

Instead of resisting the liberalization therefore, Indian LCC carriers may in fact want to hasten it and even ask for open skies. In the end, an Indian carrier will know the Indian market better than foreign competitors and thus must prevail over them, eventually. The trick is to get the scale as fast as possible.