'Aviation sector has potential to shape the economy of India'

Relaxation of Foreign Direct Investment (FDI) in civil aviation sector and unveiling of first-ever policy document have brought a new enthusiasm. These measures provide something for everyone though none are fully happy. Phee Teik Yeoh, CEO of Vistara, responded to queries of Deccan Herald’s Shemin Joy. Excerpts:

How do you see the civil aviation sector in India at present? What are the possibilities?

The air passenger traffic that grew more than 20% in 2015 is a testament to the fact that the sector is on a growth trajectory. With an anticipated three-fold increase in domestic air traffic and the potential to create economic value of up to $250 billion by 2025, Indian aviation is at the centre stage. Players all over the world are closely following developments in India as the growth seen in the last few months has even outpaced some of the largest aviation markets in the world, including China and the US. The aviation sector has the potential to shape the economy of India by contributing over 5% of the GDP and catalyse its growth. A liberal policy framework, one that leads to the setting up of a robust industrial ecosystem, is therefore indispensable for the sustained growth of the sector. The last few days have been marked by momentous changes that would herald an era of transformation.

What are your views on National Civil Aviation Policy (NCAP)?

The NCAP is a progressive step taken to simplify systems and processes. Measures taken by the government towards regional connectivity provides the middle class consumers with an alternate travel option. While this reform indicates that the government is trying to create an industrial ecosystem that boosts connectivity, the economics of this concept still needs to work out so that airlines do not suffer losses on these routes. While the government will be implementing viability gap funding, it might need an additional push through reduction in taxes and concession of utilities by the state government to encourage operators to fly those routes. The aviation policy also provides measures to improve India’s international connectivity. The open sky policy, for instance, applicable to SAARC countries and those beyond 5,000 kilometre from Delhi, makes India an even more attractive market for many international airlines. The much debated 5/20 rule has also been finally addressed. The restrictive 5/20 rule has made way for a more liberal 0/20 rule and we hope this is a first step in the unconditional removal of this rule.

Are you happy with the scrapping of 5/20 Rule? How quickly you can start international operations?

Vistara, since inception has been very transparent about its international ambitions. We have been opposing the stringent 5/20 rule and advocating against the same. However, we have always maintained that our growth in India is independent of the 5/20 rule. As an Indian airline, we are committed to grow our footprint in India and now with clarity in guidelines, we look forward to providing connectivity to travellers to/from India. We had an indicative plan for international operations but now is the time to fine-tune it in light of the current market situation and some other variables such as lead time required for overall preparations. At present, we have 11 aircraft in our fleet and as per our initial plan we will have a fleet of 13 aircraft by end of this year and 20 aircraft by June 2018, which means we can anyway start to fly overseas from June 2018. Now with the announcement of the policy, we do not rule out accelerating the deliveries or procuring more aircraft from leasing firms/OEMs. It all depends on our final plan and readiness. Our focus will be on a measured pace of growth and we will go overseas only when we are ready with the enhanced products and services that are relevant to international passengers.

What is the expected cost for starting international operations?

For the acquisition of new aircraft and to take our operations global, we definitely need fresh funding. We will approach our parent companies on the matter. We are now chalking out a long term strategic plan and will present the same to our promoters in order to raise funds for international operations and domestic growth.

What more did you expect from the government?

The NCAP has addressed many issues and the government has announced progressive measures, which have been welcomed by everyone in the industry.  However, there still remain areas which need attention. An airline’s capacity and ability to fly on international routes should not be determined by its fleet size or experience in domestic market. As long as the airline meets safety regulations and is operationally capable of flying the route it desires, there should be no barriers in its path. It would have been ideal if the 5/20 rule was completely and unconditionally abolished to fully realise the potential of the sector. There could have been concrete proposals on ease of doing business and reduction in cost of doing business like concession on airport charges and ATF. We are in support of the government’s efforts to promote remote region connectivity and are committed to contribute towards this goal.  However, market forces should be allowed to prevail and it should be left to the airlines to decide that after fulfilling the minimum commitment to CAT 2/2A routes, where they would want to deploy the remaining capacity. Also, the revised RDG (route dispersal guidelines) will not be beneficial to the industry as ‘one size fit all’ approach would not support different business models existing in the sector. And finally there is a requirement for government’s continuous focus on developing infrastructure, which currently is not keeping pace with the sector’s growth.