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  1. New aviation policy: Fixing 5/20 good, but why keep route rules or fare caps?

New aviation policy: Fixing 5/20 good, but why keep route rules or fare caps?

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.

By: | Published: June 16, 2016 8:26 PM
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. (Reuters) 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. (Reuters)

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 Rs 5,000 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 Rs 2,500 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 simply 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 much 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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