Filling the void

The government has done well to relax the curbs on the operation of international flights by private Indian airlines by ending the monopoly of Air India in the area. The existing policy had constrained the ability of private airlines to expand because it denied them a level playing field.

The government-owned airline had the first right to fly on foreign routes and it exercised this right with a dog in the manger attitude. Airlines can operate international flights to and from locations within the national borders only on the basis of bilateral treaties. India has such agreements with over 100 countries but about 80 per cent of its market share in terms of agreed capacity is not being utilized now. This is because Air India is unable or unwilling to operate flights to many destinations and has chosen to refuse permission to private airlines to operate the flights. The government recently stopped signing such treaties because Air India is unable to operate more flights.

This has only helped foreign carriers to expand their business by attracting Indian passengers on the routes on the basis of the reciprocal rights granted by bilateral treaties. Indian private airlines are more dynamic than Air India and can thrive if they are given the opportunity to fly more foreign routes. It will also introduce more competition which should help Air India too, if it takes its business seriously. Airlines operate much more profitably on international routes than on domestic routes. There will be better fleet utilisation and low-cost Indian airlines will be better placed to take advantage of the opportunities.

The West Asian and European sectors are especially attractive because of the high passenger volumes which Air India is unable to capitalise on. Dubai is the most profitable route but only slightly more than 50 per cent of the flying rights are being utilised. It is as low as 10 per cent on the European routes.

Operating more international routes will also help private carriers to buy fuel at cheaper rates. Fuel costs account for a major part of the operational expenses. The recent decision to allow airlines to import aviation fuel was wrong because it deprived states of revenues and would not help the airlines because of the incidental costs involved. Giving them the freedom to do their business would help them to manage it better. It will also deny them the reason to ask for sops and props from the government.