Aviation policy-Moving towards clearer skies

Aviation policy-Moving towards clearer skies

The recent Draft National Civil Aviation Policy (DNCAP) brings in hope for the civil aviation industry, which is still trying to find its feet. The government has worked on the draft NCAP 2016, for over a year now and will submit its final draft to the Union Cabinet, possibly once the courts give a decision on the ground handling controversy.

For an industry which has had its fair share of tough times, the DNCAP was a refreshing change. It differs from former civil aviation policies, primarily in terms of presenting an integrated view of all issues impacting civil aviation. It reviews sectional policies on ground handling, eligibility criteria for international flights, bilateral air service agreements, regional connectivity, greenfield airports and air cargo. Moreover, it includes hitherto inadequately addressed sectors like Maintenance, Repair and Overhaul (MRO) and helicopter infrastructure.

The policy is definitely progressive, however, falling short on a couple of issues. One of them is addressing the problems of general aviation and business jet segments, where shortage of parking space combined with indiscriminate airport charges on account of ground handling, hangarage and parking has led to  a number of air operators shutting shop in the last couple of years. This is one domain where a one-time double-digit growth gradually slipped into negative territory in 2013, and has stayed there till date.

Scrapping 5/20 — a good idea

Another issue is the hotly debated 5/20 rule, which the DNCAP addresses with caution. Flying abroad allows airlines to sweat their assets and achieve higher yield in terms of per-passenger per-km, as compared to domestic routes. The new carriers are desirous of going international at the earliest, whereas established players — Jet Airways, IndiGo, SpiceJet and GoAir — under the umbrella of Federation of Indian Airlines (FIA), oppose any tweaking or scrapping of the norm. The national carrier Air India had earlier opposed the review, but of late has dropped its opposition.

In this respect, it is observed that foreign carriers still dominate international traffic to and from India. Though homegrown airlines have been slowly increasing their market share, they presently have only about 35 per cent of the international market.  Allowing foreign carriers to continue to capture market share for a longer period of time by delaying the permission to fly abroad to new carriers does not make sense. Besides, the new open sky proposal will result in unlimited flights to and from Europe and the SAARC (South Asian Association for Regional Cooperation).  Even if introduced in a graded manner, it will still stiffen the existing competition.

On the other hand, we have the recent example of permission being denied to an airline to fly between Andaman and Nicobar Islands and Thailand/Singapore by citing the 5/20 rule, despite the market opportunity available in the region. As we are opening up the skies to foreign carriers  and as 40 per cent of bilateral traffic rights of Indian carriers  presently remain unutilised, it may be a good idea and a good time to remove the restrictive 5/20 rule on Indian carriers. Domestic Flying Credits (DFC) and Route Dispersal Guidelines (RDG) should not be linked to airlines in India attaining an international status.  Anyway, the DFC model appears to be a complex system to follow and calculate. It will also be difficult to implement and regulate.

The RDG may continue with minor changes as flights to remote states are at times a necessity rather than an option — but then the government needs to take steps to incentivise airlines to fly on such routes. For example, the North Eastern Region provides a viable opportunity to develop charter services, and with required infrastructure, can also be deployed as a gateway for international flights to South East Asia.

In the PPP model-based airports, the high cost of partnership is passed on to airlines and passengers. Airport charges make up between 12-15 per cent of the cost of operations of airlines. They include landing charges, parking charges, fuel throughout charges, route navigation facilities charges etc. Similarly, under profit sharing agreements, 35 per cent of royalty has to be given by Ground Handling Agencies (GHAs), and 20 per centof the royalty has to be given by MRO providers to airports. These charges make operations for airlines even more costly. In this context, the steps DNCAP has proposed to rationalize the royalty payments and certain airport charges assumes importance. However, we can go a step further by encouraging the airport operators to enhance non-aeronautical revenue, so that the same is available for cross-subsidising aeronautical charges, and reducing the burden of airport charges on airlines.

Therefore, will we be able to achieve the vision of creating an eco-system to enable Rs 30 crore domestic ticketing by 2022 and Rs 50 crore by 2027? The sector has seen growth of low-cost and regional carriers in the past few years with an increase in FDI cap, development of airports infrastructure, allowing private carriers to operate overseas. The consumer now has a greater choice of schedules, frequencies and airports served. Average air fares in Indian aviation market have dropped considerably.

Increase in passenger traffic has directly impacted the capacity expansion in the Indian aviation sector in terms of fleet size, routes and seat capacity. At present India accounts for more than 11 per cent of global aircraft demand which is quite large considering the modest penetration of air transportation in India. The Indian aviation sector has also successfully demonstrated that it can survive periods of financial crisis, volatile ATF costs and financial downturns. A pragmatic NCAP which provides a win-win situation for all stake holders, can now provide the desired thrust towards clearer skies.

(Author is the Director of Aerospace and Defence at PwC)

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