PM Narendra Modi-led NDA government’s new Civil Aviation Policy (National Civil Aviation Policy) is a big boost, not only for the sector, but also for you, the consumer, who is not only going to get more airlines to choose from, but will also have the benefit of low air fares for regional routes.

The new Civil Aviation Policy was approved on Wednesday with the aim to make flying more affordable and convenient. In a major move, domestic carriers will no longer have to operate for five years before they can start flying abroad, although they must still have 20 aircraft in their fleets.

Easing the 5/20 rule marks a further step towards liberalising the country’s aviation market, the world’s fastest growing, and is a boost for Tata Group’s two recent ventures – Vistara, in partnership with Singapore Airlines, and AirAsia India, a venture with Malaysia’s AirAsia Bhd.

“The new Civil Aviation Policy will help Indian consumers. Cap on fares will boost regional connectivity”, Vistara India CEO told a TV channel.

Incumbents such as Etihad-backed Jet Airways, InterGlobe Aviation’s Indigo Airlines and SpiceJet already flying overseas had lobbied hard to keep the rule in place.

So, what’s in it for you?

Says Kuljit Singh, Partner at Ernst Young India, “The new Civil Aviation Policy is a big positive for fliers. The decision to cap air fares at Rs 2500 (for one-hour long flights) for regional routes will lead to a huge rise in passenger numbers from Tier II and Tier II cities.”

“Add to that the fact that more and more airlines entering the sector will allow consumers a plethora of choices to make their decision. I think consumers are the biggest beneficiary here,” Singh tells FE Online.

 

Amber Dubey, Partner & Head, Aerospace & Defence, KPMG in India feels that the new civil aviation policy takes flying to the masses! “The key focus of NCAP 2016 is on affordability, connectivity and ease of doing business. The regional connectivity scheme under NCAP will connect India’s remote unconnected regions, boost tourism, create jobs and stimulate the economy in Tier 2-3 cities,” he says.

Also read: Civil aviation policy approved: From capping airfares to 5/20 rule; 15 highlights

Additionally, refund of cancelled tickets will be paid in 15 days.

According to CII, the new Civil Aviation Policy provides thrust to regional connectivity by enhancing connectivity to the country’s smaller towns and cities. “The policy caps fare between smaller towns and cities means government is committed to make flying more affordable for Indians and India more accessible to international travellers.”

 

CII also tells FE Online that the government’s move to refund 80 per cent of the losses incurred by airlines due to the cap in fare on such routes and offer sops and incentives to airlines to fly on these routes is a good move. “Thus, the policy aims at realizing the twin objective of ensuring cost competitiveness and improving connectivity,” the CII official says.

What about airlines?

The highly illogical and anti-competition 5/20 rule has been replaced with 0/20, which effectively translates to 3/20 as it will take at least 3-4 years to have a 20 aircraft fleet, says KPMG’s Dubey.

CII is of the opinion that the Civil Aviation Policy 2016 would be critical in helping to build a more modern, safe, secure and sustainable industry which undoubtedly would be critical in raking investments in the sector.

“With focus on liberalization in open skies regime, abolition of contentious 5/20 rule, promotion of air cargo, maintenance, repair and operations (MRO) et al; a slew of policy enablers and fiscal incentives have been announced just at the right time. Hopefully, the investors would now come forward to take forward India’s Aviation story,” CII adds.

Singh of EY India feels that in terms of investment in the sector, the 0/20 rule will spur entry of a lot of airlines in the sector and these airlines will also attract equity interest from foreign players. “So more and more airlines will be added. The fact that subsidy payments will be made to airlines over and above the cap on fares will ensure that their balance sheets are not stressed,” he says. “Here, I believe that new players will enjoy an edge over existing players since new airlines will have a better chance to attract equity interest from international airlines,” he adds.

What are the shortcomings?

Both CII and KPMG rue the fact that the new policy is silent on the issue of an independent Civil Aviation Authority. “The policy is silent on the issue of setting up an independent civil aviation authority and chalking out cheaper funding options for development of Airport infrastructure,” CII says when asked about areas where the policy falls short of expectations.

Dubey points out, “The NCAP is unfortunately silent on other issues like formation of an independent Civil Aviation Authority (CAA), privatisation of Air India, market-listing of AAI, hive-off of Air Navigation Services (ANS) from AAI. Some of these measures can be taken outside the ambit of NCAP since these involve mostly government owned entities.”

“Making the first ever integrated aviation policy was tough. The road ahead will be tougher as we go for its implementation in letter and spirit. If the government, industry and end-users work together keeping India’s national interest in mind, there’s no reason why India can’t achieve its vision of becoming the 3rd largest aviation market by 2020 and the largest by 2030,” Dubey concludes.