1. What the new aviation policy left undone

What the new aviation policy left undone

Fixing 5/20 good, why keep route rules or fare caps?

By: | Published: June 17, 2016 6:06 AM
Given how the 5/20 rule to fly overseas—an airline must be at least 5 years old and have a minimum of 20 aircraft (PTI) Given how the 5/20 rule to fly overseas—an airline must be at least 5 years old and have a minimum of 20 aircraft (PTI)

Given how the 5/20 rule to fly overseas—an airline must be at least 5 years old and have a minimum of 20 aircraft—was such a blatant attempt to preserve the monopoly rights of older airlines, newer players must feel a big sense of relief now that it has been partially done away with.

Since 20 planes are still required, though, it will take the newer players 2-3 years to be able to fly overseas—in that sense, 5/20 is now 2/20 or 3/20. But what is shocking is that such a policy—one which communications minister Ravi Shankar Prasad rightly described as a ‘questionable legacy (that had) been thrown into the dustbin’—was continued with by the BJP for over two years; and what is the rationale behind 20 planes, why have a minimum number at all?

While that obviously shows just how much pressure the older airlines must have exerted to keep the 5/20 policy in place, most of the measures announced—and there are many good ones such as the encouragement to MROs to ensure the R5,000 crore annual aircraft maintenance market will no longer be exported to Sri Lanka or Singapore—indicate the government is still not comfortable with completely freeing up the market. This includes, if you please, an absurd cap on the rates charged for extra baggage that was introduced a few days before the new policy was announced.

The fact that aviation minister Ashok Gajapathi Raju said Indian airlines must first serve India—the new rule is contingent on a fifth of capacity being deployed locally—is symptomatic of this thought-process.

The move to get more regional connectivity is in the right direction and the policy correctly identifies high VAT rates on aviation turbine fuel (ATF) as the major reason for high costs/fares—to that extent, ensuring that state governments reduce the VAT on ATF to 1% if various destinations are to be covered under the Regional Connectivity Scheme (RCS) is a good idea.

A reduction in the very high VAT rates in most states could have been achieved by putting ATF in the list of ‘declared goods’ but states would probably have protested—a uniform VAT will have to wait till  petroleum is included under the GST.

Under the rules, the details of which are yet to be announced, a cap of R2,500 for a flight duration of less than an hour will be put on airfare to unconnected cities/towns and viability gap funding will take care of the rest. Apart from the fact that it is not certain how this VGF is to be fixed, wouldn’t it just be simpler to announce a VGF for different sectors and then leave the pricing to the market?

It is unfortunate, similarly, that the decades-old Route Dispersal Guidelines that determine the minimum proportion of flights airlines must fly on different category of routes has not been phased out—in this case, too, if the government found that certain routes were not adequately serviced, a subsidy could be given to encourage airlines to do so. In the case of telecom, similar rural obligations did nothing to develop rural telephony for years, but when the market was rich enough to pay, private players flocked to rural areas.

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  1. D
    D. V.
    Jun 18, 2016 at 1:47 am
    My friend was very seriously road-accidented in Baroda > 5 years ago requiring him to be air-stretchered to Mumbai for advanced surgery. Not a single private airline configuration had a design provision to carry a patient on a stretcher. Govt. owned Indian Airlines/Air-India came God-send to do the needful when imperative ! Despite tall talk of corporate social responsibility and initiatives, this most urgent and vital medical aspect was/is conveniently dropped from the agenda. A rapid transition from a strict regimentation to a liberal environ risks highly the socio-economic environ and needs to be calibrated to ensure a proper takeoff and safe, secure and soft landing for the common long-term good. Yes, the cap on rates chargeable on excess travel > essentials is symptomatic of the old baggage mentality requiring a hard relook, while admitting that high VAT rates spiral costs/fares is a truism that is universal in nature with respect to Goods & Services which run and sustain an economy, The Rs. 2.5K fare for air travel up to 59 minutes needs prior(initially) and concurrent (once operationalised) Cost Audit to pre-empt turbulence to stay air-borne on its scheduled flight path, as the dictum starkly underscores - there is no free lunch. One may, also, add that Breakfast precedes Lunch, hence ...

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