With the Union Cabinet on Wednesday replacing the 5/20 rule with 0/20, newer airlines like Vistara, AirAsia and GoAir can fly overseas within a year’s time. They may do so even earlier — within six months — if they are able to ramp up their fleet sizes. The Wadia Group’s GoAir will be the first to go overseas as it already has 20 aircraft and needs to add just one more to be eligible to fly abroad.
Vistara Airlines, a joint venture of the Tata Group and Singapore Airlines, will be ready to fly overseas by June 2018, CEO Phee Teik Yeoh told FE. Another new airline, AirAsia, also a JV between the Tata Group and Malaysia’s AirAsia, wouldn’t say when it would start flying overseas but CEO Amar Abrol, while welcoming the new policy said, “Now everyone can fly.”
The 5/20 rule stipulated that a carrier must complete five years of operations and have 20 aircraft before it could start flying abroad. The new policy, while scrapping the five-year clause, has stated that airlines need to deploy 20 aircraft or 20% of their total capacity (in terms of the average number of seats on all departures put together), whichever is higher, for domestic operations to be eligible to fly overseas. This, the policy states, is to provide a level playing field between the old and newer airlines. Since airlines like Vistara and AirAsia currently have 11 and six aircraft, respectively, they cannot fly overseas before they ramp up their fleets to 20.
The CEOs of Vistara and AirAsia said the rule relating to 20 aircraft could have been done away with. Abrol of AirAsia observed that although a 0/0 or 0/10 would have been more than welcome, the amendments to the policy are encouraging. “The NCAP (new civil aviation policy) gives us clear direction to ramp up our operations in India and grow our business in the domestic segment before we scale our operations to fly international,” he said.
Vistara’s Phee Teik Yeoh said the airline would ideally like the unconditional removal of the 5/20 rule as this will allow the aviation sector to reach its full potential faster. “However, with the dilution in the rule, I am optimistic that it will pave the way for total abolition of the rule,” he added. The CEOs of incumbent airlines, who in the run-up to the policy had opposed any relaxation in the 5/20 norms, did not offer any comment.
The CEOs of newer airlines as well as analysts welcomed the new civil aviation policy because apart from adopting a middle path on the contentious 5/20 clause, it has steered clear of the controversial auctioning of bilaterals, which was mentioned in the draft policy released for stakeholders’ comment in October 2015. With concerns raised over this, the government has now decided that a final call on additional rights would be taken by a committee headed by the Cabinet secretary.
As part of the policy, the civil aviation ministry will come out with initiatives to develop new airports, separate regulations for helicopters and measures to boost skill development in the aviation sector. Airlines will also get tax incentives for operating on unserved routes under the regional connectivity scheme.
“The abolition of the five-year rule would allow newer airlines to join older ones in flying abroad on routes that are more profitable,” Amber Dubey, partner, KPMG, told FE. Another industry expert said that the dilution of the rule would encourage domestic carriers to take on the might of Gulf carriers which handle bulk of the Indian passengers flying abroad. This will also enhance the business prospect of domestic airports as airlines would vie for hubs.