AIRLINES SECTOR TAKES OFF - SAFE LANDING?

By Ruma Dubey

The 5/20 rule is gone and now what we have is a 0/20. And this is a good one.

5 in 5/20 stood for 5 years and 20 for at least 20 planes in the fleet. That was the condition set for domestic airlines to fly international – the company which wants to fly into and out of India, needed to have been in existence for at least 5 years and with a minimum fleet of 20 airplanes.

As per the new Civil Aviation Policy, there is now a partial abolition of 5/20 – the mandate of 5 years of operations for domestic airlines is gone but it will need to have 20 aircrafts or 20% of its total fleet, whichever is higher, allocated for domestic sector is they wish to fly international.

In short, what this means is that Air Asia and Vistara who do not have five years of operations in India but have a fleet of 20 aircrafts which can be pressed into serving domestic sector, can finally fly international. But that could take a while as both Vistara and Air Asia will have to first increase their fleet; currently Vistara has 11 aircrafts while Air Asia has six. And it could take a couple of years for these two airlines to ramp up their fleet.

The good news for us domestic carriers is that the Cabinet has also approved a cap of Rs 1200 airfare for 30 minutes flight and a cap of Rs.2500 for a one-hour flight. Though this is good, what we learn is that the Govt will be reimbursing 80% of the losses on account of this low fare. Subsidy is a bad word – the moment we say this, we cannot help but visualize the oil marketing companies, which in the $100/barrel oil days used to bleed into losses, just waiting for the Govt to reimburse the subsidy. Ditto picture in the fertilizer sector too. While this is consumer friendly, for the airlines, this introduction of subsidy is very bad.

Nothing in life comes free – so if there is this low cost here, this has to be offset with a higher cost somewhere else, right? So it is being mooted to bring in a 2% cess for domestic and international travel – this cess will be pooled into the regional connectivity fund. Thus we end up paying more for a good idea, just like Swachch Bharat.

There is no doubt that this new policy will increase competition in the airline sector. We saw last month the promoter of VRL Logistics evincing his interest to start his own airline. In South India, there are so many airlines already providing regional connectivity - Pegasus, Fly Easy, Air Carnival, TurboMegha's airline - TruJet, and Air Costa.

We will also probably see more new smaller, regional airports getting developed and overall spend on building aviation infrastructure will have to go up. There is a lot of hullabaloo that 49% FDI cap has not been relaxed. This may not happen now but eventually, the Govt will have to raise the cap to 74%.

Sadly no news in the policy about Air India or its restructuring or better still, privatisation. Worse still, yesterday, the airlines last flight from Durgapur took off – it plans to suspend flying to this small town as it finds it unviable. This airport was put up at a costs of Rs.600 crore and today, there are no flights taking off. Now the Govt will urge the private sector to fly there. Thus this regional connectivity to remote places is ok when it comes to the private sector, even if unviable but not for Air India? How is that fair at all?  And this mismatch will only go up as more airlines enter and the Govt insists on regional connectivity.

The bottomline here – the Govt has to get out of airline operations. And those seeking extension of protection need to know that – too bad they had to suffer through this rule but that does not mean others should also. As time and thinking evolves, progress will happen and rules will change.