India disappoints aviation reformers

Buoyed by the election of prime minister, Narendra Modi, India’s airline industry expected the new government would quickly modernize the country’s aviation oversight and planning. Twelve months on, reformists are fighting a rear guard reaction from airlines who prefer the old ways.

by CHIEF CORRESPONDENT, TOM BALLANTYNE  

September 1st 2015

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International Air Transport Association (IATA) director general, Tony Tyler, did not hold back in his keynote address at a recent conference in Delhi. Read More »

“While demand growth is robust and some airlines are generating profits, sector-wide losses for India are still expected to exceed $1 billion this year,” he said. “Onerous regulation and processes, debilitating taxes and expensive infrastructure are holding up the industry’s ability to deliver greater economic benefits to India,” Tyler said.

Speaking at Aviation Day India, organized by IATA and India’s Ministry of Civil Aviation and the Confederation of Indian Industry, he said India needs smarter regulation.

“If we can work together to build regulations that meet the public interest, are consistent with global standards and can be implemented efficiently then we are all winners. And we will avoid the angst involved in unwinding mistakes,” he said.

Disappointingly, it emerged a few days after Tyler’s public plea that the long awaited reforms to aviation policy promised by Narendra Modi won’t be arriving anytime soon. “We are completely rewriting the draft aviation policy. We are working on a sensible policy,” said Civil Aviation secretary, R N Choubey, who added the revised strategy would examine reducing fleet acquisition costs and airport regulation.

It would include removal of the much debated 5/20 rule, which requires airlines to operate for five years and have a least 20 aircraft before they can fly internationally. Once the policy is revised it will be put up for public comment, expected to be a lengthy process, he said.

Coincidentally, the announcement was made as a new report was released that criticised the slow pace of aviation policy change in India. Written by global aviation data specialists, OAG, it said a year after the new government announced it would embark on a range of significant reforms “the Indian media are speculating that Modi has so far failed to deliver India from its ‘morass of red tape’. It brings us to the question of what evidence is there that real change is taking place in aviation”?

OAG said it was not the first time India was perceived as being close to a breakthrough in air travel. “Last time, the boom times led to bust as excitement about market potential meant the sector lost focus on the business basics,” OAG said.

With more capacity than demand and fares lower than costs, the industry stagnated and several airlines fell by the wayside.

Said OAG: “The question is, are we there again? Is anything different this time around? “Will Modi’s government be able to change the operating environment so that the most competitive airlines thrive, or will policy be determined by protecting special interests?”

Tyler said aviation and aviation-related tourism supported seven million Indian jobs and $23 billion of India’s GDP. “The healthy growth of the sector has the potential to expand these benefits tremendously. But there are immense challenges which must be overcome, as demonstrated by sector’s financial performance,” he said.

IATA’s priorities included reducing the industry’s taxes and airport charges, competitive fuel pricing and lower provincial fuel taxes.

“Regulation is holding back the development of the sector,” said Tyler. “Well-intentioned regulations, but which are inconsistent with global standards, make doing business in India very difficult for airlines. India imposes rules and requirements that are not seen anywhere else,” he said.

The OAG report described Indian airlines as riding a roller coaster in the past decade, but added they had still recorded average annual growth of 12% a year since 2005 and averaged 10% annual growth in the international market during the same period.

India has a vision of becoming the third largest civil aviation market by 2020. Ambitiously, the India Brand Equity Foundation forecast it could become the largest Asian market by 2030, a statistic that most serious analysis forecasts for China.

In IATA’s latest 20-year forecast, India is expected to grow by an additional 266 million passengers, to reach 367 million by 2034, making it the third largest market by 2031, after the United States and China.

“Having said all this, the propensity to fly in India is still very low. In 2014 there were 63 airline passengers to, from and within India for every 1,000 of the population. This compares with 242 in China, or 1,689 in the U.S. While the Chinese propensity to fly is four times that of India, in many ways this shows why there are such expectations for the Indian air transport sector,” said OAG.

In their manifesto, the BJP [government] party promised modernization of existing airports and the development of low-cost airports to promote air connectivity. A draft civil aviation policy was released in November 2014 for consultation. It prioritized the development of six airports as the country’s major international hubs. The policy has been strongly opposed by many of India’s states who believe they will be excluded from direct international air services as a result of the new policy.

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Approval of the policy, expected to be ratified in the first half of the year has not materialized, OAG said.

It also was hoped the 5/20 rule would be abolished by now. While this still appears to be the plan, there’s been no movement yet, said OAG, especially as some airlines are lobbying to maintain the rule.

For India’s home-grown carriers such as IndiGo, Spicejet and Jet Airways, the policy change would remove part of their competitive advantage. They have had to wait to gain international air service rights. It is possible too that some states are lobbying hard to delay changes to fuel tax policy, as fuel tax income is a rich source of funds for provincial governments. But the government should stick to its original plan – encourage competition among airlines, open international access and focus on infrastructure, OAG said.

Speaking at the IATA Aviation Day, G. Asok Kumar, a joint secretary at India’s aviation ministry, said “thrust areas” in the new policy would include setting up low-cost airports. He said the country needs about 200 to 300 airports. At present, there were around 93 operational ones and scheduled carriers were operating to a little more than 70 airports.

The government had planned to implement the proposed new aviation policy from January this year, he said, but it could not reach a consensus on the changes with stakeholders so it had to be deferred.

He said his ministry was working with states to bring down Aviation Turbine Fuel taxes, which can be up to 50% of an airline’s operating costs. Moderate fuel prices are a key component to making the industry competitive,” Choubey told the conference.