Dog Fight over the New Civil Aviation Policy Intensifies.

This is the middle of hectic lobbying. (See Lobbying) The fight is on. It is

Between

FIA - A federation of four of the country's biggest private airlines, IndiGo, Jet Airways, SpiceJet and GoAir which together control over 90 per cent of the industry. Chairman Rahul Bhatia of IndiGo.

AND

Non FIA - Vistara and AirAsia- in which Tata Sons owns substantial stake. Visible Face : Ratan Tata

FIA opposes strongly the draft aviation policy in its present form.

Areas of concern.

• ·         3 components of the draft policy-

o   The proposed abolition of the 5/20 rule, auctioning of bilateral rights and lifting the foreign ownership cap on domestic airlines above 49 per cent.

o   The biggest beneficiaries from the proposed changes are likely to be only two new airlines- Vistara and AirAsia.

o   Substantial ownership and effective control norms were being flouted by the foreign partners of new airlines Vistara and AirAsia.  Arun Bhatia, co-founder of Air Asia had earlier threatened to go to court on grounds that it is remote controlled by Malaysian shareholders.

• ·         The policy is being finalised without taking FIA’s concerns into account.
• ·         Irked by the ministry's persistent refusal to allow them to present their views about the policy.
• ·       The 5/20 Rule

o   the policy has suggested doing away with the 5/20 rule

o   replacing with a credit-based system

o   Any decision on 5/20 rule must be taken in tandem with the Route Development Guidelines and not as an independent entity.

o   "If 5/20 is abolished, route dispersal guidelines should go too. By merely abolishing the 5/20 rule and keeping the route development guidelines intact, the government will completely tilt the balance in favour of airlines which are effectively controlled from abroad." : Ajay Singh of Spicejet.

o   "While an IndiGo with more than 100 aircraft cannot restructure its network by withdrawing from any unprofitable routes, an airline with just five aircraft can fly abroad with the sixth one - this is not acceptable,":  Aditya Ghosh of  Indigo.

• ·         "The proposed changes are regressive and would harm Indian aviation." : Wolfgang Prock-Schauer of GoAir
• ·         Any move to auction bilateral rights which will put them at a disadvantage and lead to unfair competition with airlines from Gulf or the European Union which have deep pockets.
• ·         "Every country, including the US and Singapore, zealously guards its bilateral traffic rights. With auctioning of these, India will put its airlines at a disadvantage." : Ajay Singh of Spicejet. Gulf carriers like Etihad and Emirates have already increased their footprint manifold after the previous government gave greater freedom to them - a move that was criticised by the Comptroller and Auditor General in its audit report.

Battle Lines being drawn.

FIA in its submission to the civil aviation ministry has added a copy from Justice Srikrishna who has suggested the changes as violation of constitutional rights. "In my opinion, if the draft policy is implemented in its present form. One would be entitled to challenge the same ground of hostile discrimination and infringement of their fundamental right by way of appropriate proceedings before a court," Justice Srikrishna wrote.

Rahul Bhatia, has informed media that a legal recourse would be a possible option. "We don't want legal battles but if the ministry is not ready to listen to us, what's the option? We just want a level-playing field," he said. Responding to former Tata Group Chairman Ratan Tata's statement that older airlines were resisting changes in fear of competition, Bhatia wondered why Tata, known for his wisdom, had become so vocal on an issue where he had a vested interest. The biggest beneficiaries from the proposed changes are likely to be Vistara and AirAsia in which Tata Sons owns substantial stake.

Global Charm of Indian Aviation: courtesy Indian Middle Class.

Indian budget carrier Indigo, India's biggest and most profitable airline, has ordered 250 new A320neo jets, claimed to be more fuel efficient aircraft from the European Aircraft manufacturer, Airbus in August 2015.

The deal is a colossal boost for Airbus, which says that the IndiGo order is its largest ever by number of planes. The order would be worth $26 billion at list prices and taking into account significant discounts to such large airline customers. "It fills us with pride that IndiGo, India's largest airline and one of the early launch customers for the A320neo, is coming back for more of our benchmark aircraft," Airbus sales chief John Leahy has said in a statement. "This order confirms the A320 Family as the airliner of choice in the most dynamic aviation growth markets." Deals with IndiGo have helped extend Airbus's lead against arch-rival Boeing in orders for the fast-growing upgraded narrow-body aircraft segment. Airbus' A320neo – an upgraded next-generation model of its A320 – competes against Boeing's similarly updated version of its 737, the 737 MAX.

The order confirms IndiGo as one of the world's largest operators of Airbus' A320 family of narrow-body jets. Earlier, in January 2011, IndiGo had ordered 180 planes worth $15 billion from Airbus at the time the biggest order in commercial aviation history. IndiGo’s goal has been 1,000-jet fleet.

Also Read : IndiGo in 100-aircraft club, Spicejet plans 150

At the Dubai Airshow in November 2015, U.S. aircraft manufacturer Boeing had announced that Jet Airways, part owned by Etihad Airways, had agreed to an $8 billion deal to buy 75 Boeing 737 aircraft. Jet Airways will start taking delivery of the planes from mid-2018.

Airbus has now secured 4,100 orders for its A320neo family of jets while Boeing's tally for its 737 MAX stands at about 2,830. The purchases are in line with Boeing's forecast released in August 2015 that it expects demand for 1,740 planes in India over the next 20 years, at an estimated price of $240 billion. Most of these planes will be for fleet expansion and replacement of aged aircraft.

Also See : Airbus or Boeing: Whosoever Delivers early, wins Spicejet's Order

IndiGo, Spicejet and Jet Airways have become so capable today that they shop for planes worth billions of USD. Can it not be concluded that they are able to do so because of the sheer strength of Indian Middle Class?

 

The Hindu's Survey on Indian Middle Class

Middle class buying power

India’s aviation industry's rapid growth is actually attributed to the need of the millions of Indian Middle Class who has to travel across the length and breadth of the country for one reason or the other. Be it job, education, medical treatment, business or just a vacation. The demand for air travel continues to grow, and the root-cause of it is the need.  To fly has indeed become the compelling choice as compared with lengthy modes of ground travel. More and more airlines have started flights to tier 2 and tier 3 cities. Moreover, the competition between the airlines results in cheaper tickets which makes relatively easier for the Middle Class mass to afford.

Also Read : Something has changed for the better

Earlier, a year ago, airlines in India were in misery. Apart from various other problems, vicious fare wars among themselves had pushed many air carriers in the red. Experts say that the problems with the aviation sector initially appeared big, but despite major obstacles like burdensome Rules and Regulations, high jet fuel prices, lack of aircraft maintenance infrastructure, and choked airports; explosion in air travel business in India during the past decade did happen. The recent fall in oil prices helped matters, but the effect of growing Middle Class of India has simply been overwhelming. It is there for everyone to see and realise. The size and potential of the Indian Middle Class, constituting the bulk of the Indian aviation market, is so huge that it has compensated most of the faults in the system. 

As a result, India is set to become the third largest aviation market by 2020. “Air travel in India will continue to grow at double digits for the next 10 to 15 years," said Kapil Kaul, regional head of the Aviation consultancy firm Centre for Asia Pacific Aviation (CAPA). It expects domestic passenger traffic to touch 100 million passengers by 2016-17.  Airlines carried 81 million in 2015, up from 15.7 million in 2003-04 when India’s first low-cost airline, Air Deccan, was launched. Domestic air passengers are expected to jump from the current 70 million to 300 million by 2022, and to 500 million by 2027. Where do these numbers come from? These are basically an integral part of 1.2 billion strong population, India’s greatest asset to date. (See IATA). New International players do see these numbers. They find it irresistible and continue to be drawn into the system and be a part of Indian Economy, in general, and Indian Aviation, in particular, despite all the conceived drawbacks.

One natural way to become a part is Equity Participation. Today, the picture is so rosy that airlines in the Middle-East are keen to join Spicejet, IndiGo and Jet Airways. The government, too, has eased FDI norms. 

Several other aviation entities of the world are influenced by the Indian Aviation market. As mentioned in the beginning, Indian players have kept airplane producers Boeing & Airbus, their associated equipment manufacturers, dealers, and MROs busy who are spread across the world. If you take away those orders, Airbus and Boeing might begin staring into bankruptcy! (See Airbus couldn't control)

This, precisely, is the global charm of Indian Aviation.

A fast-growing economy and an expanding middle class have made India the world's fastest growing air travel market. The number of passengers keeps growing impressively and airlines are announcing flights to new destinations almost every week. The 2015-16 fiscal has been the best fiscal for Indian aviation. The fall in crude oil prices slashed the cost of aviation turbine fuel (ATF), which accounts for 40-50% of operating costs for domestic airlines. ATF prices have been nearly halved since July 2014 and fallen about a quarter over the past 12 months. However, aviation experts feel that the ATF prices are still higher, because of very high VAT, imposed by State governments, which should have come down consequent upon the reduction in oil prices. They feel that the rates must be slashed to 4% by all States. They say that in the past, socialist-leaning politicians regarded travelling by an aeroplane as a extravagance and not as a vehicle of economic and social growth. This tag ensured castigatory taxes on jet fuel air travel related products and services. As a result, ATF in India became almost 60% costlier than in Singapore or Dubai, both hub of busy aviation activities. Spicejet's Ajay Singh has already pointed out to India's Finance Minister Arun Jaitley : “The cost of Aviation Turbine Fuel (ATF) in India is amongst the highest in the world. ATF costs, on average, 55% more than leading aviation markets. India is ATF Surplus. India produces approx. 11.50 million metric tons of ATF per annum whereas the annual consumption is only about 5.50 million metric tons. Yet, we follow an ‘Import Parity Pricing’ mechanism.”

Reduction in oil prices enabled airlines to reduce fares, and to introduce several offers which in turn increased air traffic.

Passenger traffic continues to grow in double digits in 2016 as well with January witnessing a 22.58% surge in number of passengers as compared to the same month last year due to lower fares being offered by airlines as a result of lower operating costs. Passengers carried by domestic airlines during Jan 2016 were 7.655 million as against 6.245 million during the corresponding period of previous year as per the data produced by the aviation regulator in India, the Directorate General of Civil Aviation (DGCA). Out of a 1.2 billion population, only about 70 million Indians fly on domestic routes in a year, just a quarter of the size of air travel in China which has a similar population.

IndiGo maintained its leadership position in January 2016. In terms of the number of passengers flown during the month, the market shares were as follows:

IndiGo's performance boosts confidence

1. 35.6 % : IndiGo

2. 21.4 % : Jet Airways 

3. 16%      : Air India

4. 13.2%   : Spicejet 

5. 8.1%     : GoAir’s

6. 5.1%     : AirAsia + Vistara + Air Costa 

7. 0.4%     : TruJet: 

8. 0.3%     : Air Pegasus : 

Without doubt, India’s civil Aviation is dominated by the top 5: IndiGo, Jet Airways, Air India Ltd, SpiceJet Ltd and GoAir. At the same time, 3 year old airlines are also making their presence felt. They too have a market share. Today they operate modest fleets. The market shares of new airlines – AirAsia, Vistara, Air Costa - in January this year, doubled- up from just 2.5% a year ago. Earlier, the market share of IndiGo was 36.4%, Air India’s 18.7%, Jet Airways’ 23.2% and GoAir’s 8.9%.

Also Read : 2015 saw a few Highs and several Lows

SpiceJet was the only airline out of the established players which was able to increase its market share, from 9.4% to 13.2%. Its story resembles a miracle. The airline, which nearly collapsed in December 2014 due to a cash crunch and grounding of its planes, began to recover only after a new promoter Ajay Singh took over early in 2015. The change in management in early 2015, combined with complimentary flying economics, rejuvenated Spicejet. From a loss of over Rs 7000 million in the nine months ended December 2014, the airline posted a profit of Rs 3340 million in the April–December 2015 period. This was despite its revenue reducing about 19 per cent due to a smaller fleet and lower ticket prices.

Former Jet Airways chief executive Steve Forte said new airlines have been able to corner quick market share as a result of better mar rejuvenated conditions. “This is the normal effect of increased competition and, due to a dramatic drop in fuel costs, more flexibility in the pricing strategies. What the established carriers have as an advantage is the international networks and prime airport slots. Eventually, if the new comers go international, it may turn out to be substantial problems for the higher-cost carriers as they might not be able to match the competition,” he said.

Vistara, though had the lowest occupancy as shown in Load Factor figures - indicating the fraction of seats booked. :

1. SpiceJet : 92.1% 

2. GoAir : 84.9% 

3. IndiGo : 84.7% 

4. Air Costa : 84% 

5. Jet Airways : 82.5% 

6. TruJet : 83.4% 

7. AirAsia : 81.9% 

8. Vistara : 74.8%.

The aviation watchdog DGCA also highlighted that the passenger load factor in the month of January 2016 has slightly decreased compared to previous month.

But Vistara was the most punctual of all airlines. On-time performance:

1. Vistara : 86.6% 

2. Jet Airways and JetLite : 75.4% and

3. IndiGo : 75% 

The overall cancellation rate of scheduled domestic airlines for the month of January 2016 has been 1.10%.

During January 2016, a total of 823 passenger related complaints had been received by the scheduled domestic airlines, says DGCA data. Poor customer service, baggage and flight problems formed the biggest chunk of complaints DGCA received from customers, the data showed

As expected, the airline stocks stayed firm on the bourses last year, despite the broader market being weak. Low costs and improving traffic numbers reflected in the financial performance of all the three listed airlines — Jet Airways, SpiceJet and InterGlobe Aviation (IndiGo), which made a remarkable debut on the bourses in November 2015. Jet Airways and SpiceJet have been profitable in the three quarters so far in 2015-16 and are set to end the fiscal on a high note, after many years of heavy losses. Jet Airways swung to a profit of Rs 7760 million in the same period from a loss of about Rs 850 million in the corresponding period a year ago. IndiGo bolstered its record of being consistently profitable.  It almost doubled its profit year-on-year to more than Rs 14,000 million for the nine months ended December 2015.

The SpiceJet stock increased by more than 4 times - from less than Rs 20 last year to Rs 90 this year, before giving up some gains earlier this month. Still, it is at more than 3 times the price a year ago.

Jet Airways too soared more than 65 per cent before paring gains; it is now up about 31 per cent from the previous year.

(See from 765) IndiGo, after a successful IPO, rose more than 50% in less than 3 months. Delay in A320neo delivery and lower-than-expected September quarter performance — disclosed in the 3rd quarter results — saw the stock crash over the past month. It fell below its IPO price, Rs 765, before recouping some losses. The stock is now up about 11 per cent from its issue price.

Budget Session Starts: Budget Airline Spicejet Offers Rs 599 Fares

SpiceJet offers 2016: 

While the New Civil Aviation policy moots Rs 2500 fare for an hour of flight, and as the Budget session in Parliament begins, the budget airline has launched its ‘Pre-Summer Sale’ with highly attractive fares across its domestic network keeping its base ticket price as low as Rs 599. 

The 3 day Spicejet special offer. Summer bonanza sale.

Launch - 23 Feb 2016

Open till - Midnight, 25th February 2016. 

Travel period - 1st March 2016 to 13th April 2016.

Inventory - Limited. Seats will be available on First-Come-First-Served basis.

Riders.

• Applicable on one-way tickets on the airline’s non-stop flights.
• Sales fares are not applicable on group bookings.
• Fares vary from sector to sector depending on the travel distance and flight schedules and timings are subject to regulatory approvals and change(s).
• Refund - Only statutory taxes will be refunded.
• Alterations - tickets changeable with a change fee and fare difference

The scrupulous flier will recall the GoAir offer earlier this month. It had announced a 'Zero Cancellation' charge scheme that 'empowers' passengers to abandon their travel plans and not have to bear the flight cancellation costs if tickets are cancelled 30 days prior departure. 

Shilpa Bhatia, Sr. VP, Commercial, SpiceJet, said, “Spicejet offer is best suited for travelers who prefer off-season travel to save costs and avoid tourist rush. March – April being a spring season is also good for those travelers also who want to avoid extreme weather conditions.”

Tickets for this new Spicejet offer can be booked on NC Airways, as usual.

Now IndiGo, and Jet Airways are going to follow Spicejet.

Airlines lobby for 5/20 rule: Dog fight over 5/20 rule intensifies

A day after India's top industrialist Ratan Tata accused FIA airlines of lobbying to retain the rule allowing overseas flights by Indian carriers, Union Minister of State for Civil Aviation Mahesh Sharma  said that the government would take a call on such issues at the right time. He welcomed the suggestions made by Tata. "We salute him (Ratan Tata). As an Indian citizen, he has given a suggestion. We welcome his suggestion. We will try to take a call on his suggestion," Sharma told media. 

"We as a government are here to address and take call on such issues which come from various stakeholders and well wishers. The government will take a call at the right time," the Minister said.

The government is in advanced stages of finalising the new civil aviation policy, including taking a call on the 5/20 norm. The draft civil aviation policy has so far received mixed response from the industry with most of the airlines describing it as "progressive". While a final decision is yet to be taken, one proposal in the draft aviation policy is to scrap the 5/20 rule. Abolition or amendment of the rule is among the considerations of the new civil aviation policy that the government aims to implement shortly. Non FIA- AirAsia India and Vistara- have been pushing for the rule to be scrapped.

Rules and Regulations are made, altered and removed periodically. As a result it favors one group while it simultaneously annoys another. In case of the 5/20 rule, the world is witnessing Ratan Tata and FIA's Ajay Singh disagree. A spat has broken out in India's civil aviation sector with the Tatas-funded twin carriers and FIA arguing whether the 5/20 rule should be retained or relaxed in the new aviation policy.

Tata Group Chairman Emeritus had said that established carriers were using "monopolistic pressures" to retain "preferential treatment" under the 5/20 rule that allows an Indian carrier to fly abroad only after it operates domestically for five years and has a 20- aircraft fleet.

Ratan Tata has applauded the Civil Aviation Ministry's proposal to remove the "controversial" rule. Non FIA - AirAsia India and Vistara - the two airlines operated by the Tatas through joint ventures - are presently ineligible to operate overseas under the 5/20 norm, which requires an Indian carrier to have minimum five years operational experience and at least 20 planes to operate international flights.

"The lobbying for discriminating policies between old and new airlines is reminiscent of protectionist and monopolistic pressures by vested interests' entities who seem to fear competition, as in a variety of other sectors over the years," Tata had said in a message posted on his Twitter. 

"One hopes when the new policy is introduced it will be free of discrimination and protectionism, so that Indian aviation can grow for the benefit of consumer and the common man -- not to serve the interests of select beneficiaries of protectionism," he had said. According to Ratan Tata, the existing airline companies who have adhered to the 5/20 rule are lobbying to keep the law enacted to prevent competition; he opines that such a rule is harmful in a ‘free economy’ as it hinders the entry of new players.

Kapil Kaul, CEO and Director of CAPA South Asia sees no logic in FIA's arguments supporting 5/20. "The 5/20 rule has been a very negative policy measure which has impacted Indian consumer and economy strategically. Doing away with 5/20 is in national interests and such intense and aggressive pressure from FIA will not hold in the PM’s court. Don’t see this Government continuing with the negative 5/20 rule."

An open fight has broken out between Ratan Tata, Chairman Emeritus, Tata Sons, and FIA's SpiceJet chief Ajay Singh, on whether the Centre should remove the 5/20 rule. FIA - SpiceJet, Jet Airways, IndiGo and GoAir - are vehemently opposing any move to scrap the 5/20 norm. Reacting strongly to the charge, Ajay Singh has asked Ratan Tata to advise the two airlines associated with Tatas -- Vistara and AirAsia India -- to first serve India and then seek to fly international.

As per Ajay Singh, the two carriers were apparently controlled by their foreign parents. Singh has said: “All of us were asked to serve our great country before we got profitable rights to fly abroad. We served with great pride. What is wrong if these two foreign-controlled airlines are also asked to serve India before being allowed to fly international? Mr Tata, whom we respect greatly, should in fact urge these airlines in which his group is a shareholder, to serve India willingly before being allowed to fly international. While obtaining a licence, these two airlines had undertaken to follow the 5/20 rule, a rule they are now opposing so vehemently.”

Former Civil Aviation Minister Praful Patel took on Ratan Tata for accusing older airlines of opposing 5/20 rule, saying he was surprised that the top industrialist was advising the government while himself being "an interested party".

"I am surprised to see Mr Tata's tweet that older airlines are lobbying against a change in the 5/20 rule. While he is offering advise to the government to change the (civil aviation) policy, he himself is directly an interested party in the two new carriers," he said. "It is further surprising to see that he has said that the new airlines were formed in compliance with the prevailing policy. Then what is the need to change the policy mid-way?"

The NCP leader Praful Patel has come up with a number of views on the prevailing 5/20 issue :

• Aviation in India has grown in the fastest rate in the world on a year-on-year basis in the last decade largely due to the liberal policies adopted by the government and the advent of many new carriers, as well as the rapid pace of growth of aviation infrastructure over the last ten years.
• If the government proposed to change the policy, "it should give a reasonable time of a couple of years to the existing carriers, to adapt to the new regime". 
• Any rule, including 5/20, is not sacrosanct in an evolving and dynamic sector like aviation", 
• The present government has always maintained that any change of policy will ensure a level- playing field for existing carriers vis-a-vis the new ones. 

He expressed surprise that Air India, which was vehemently opposing any change of the rule, "has now chosen to keep quiet on the subject."  

"While old carriers have to continue to maintain flying their fleet of 20 or more aircraft on many uneconomical routes under the Route Dispersal Guidelines (RDGs), the new carriers are seeking a waiver without having to comply with the RDGs or the minimum number of aircraft. While understanding their eagerness to fly abroad, why is their reluctance being Indian flag carriers to fly within the country and reach out to remote and far-flung areas?" 

"An answer to these issues must be provided by the proponents of changing the rule and these must be suitably addressed by the government," Patel said. 

Twist in the Tale

In aviation circles, it is widely believed that the mandate from the Prime Minister Modi was to come up with a policy which will make it possible for the masses to fly.  That is the message with which the Modi government is set out to work with and promote regional and rural air connectivity.

The Modi government is indeed getting closer to the final draft of its civil aviation policy – a wide-ranging rulebook that will map out the regulatory landscape for India’s Aviation. The Civil Aviation Minister Ashok Gajapathi Raju has said that India was trying to evolve a policy that would help it realise the potential of the domestic aviation sector. Turkey's Ambassador to India Burak Akcapar is of the view that there are a lot of opportunities in the bilateral ties and the aviation sector can be a catalyst.

Under the draft civil aviation policy, one of the proposals is to cap the ticket price at Rs 2,500 for flights to unconnected areas. The draft policy has suggested various measures to tap the growing potential of the domestic aviation sector, including 2%  levy on all air tickets to fund regional connectivity.

The Civil Aviation ministry has proposed in the new policy an upfront subsidy funded through a 2% levy on air fares for both domestic flights on trunk routes and on international commercial flights to airlines. The proposed move could result in an increase in flight ticket prices on trunk domestic air routes such as those connecting major metros as well as international routes. This attempt is aimed at bringing down the cost of air travel on non-metro routes to about Rs 2,500 per flying hour under the freshly conceived Regional Connectivity Scheme (RCS) . The levy is expected to generate Rs 15,000 million per annum.

Recently, the Civil Aviation Minister Ashok Gajapathi Raju at an event organised by industry grouping PHD Chamber in New Delhi released a report of study prepared by Auctus Advisors on 'Regional and Remote Connectivity in India'.

The report says : “To promote regional and rural connectivity, airlines should have flexibility in pricing of tickets rather than capping air fares at Rs 2,500 for one-hour flights. The proposed all-inclusive cap of Rs 2,500 on air fare is even lower than the first AC train fare for longer routes covered by one-hour flights (600-800 kms). The cap on air ticket should be linked to distance traveled." According to the report, since there is a high risk of a lower load factor on regional routes, more flexibility should be given to airlines for pricing the tickets. The cap should be applicable to a fixed proportion of seats, and carriers should be given flexibility of pricing rest of the seats.

Earlier in December 2015, in a written reply to the Lok Sabha, the Minister of State for Civil Aviation Mahesh Sharma had said that that the air fares were not controlled by the government. There was no proposal before the government to regulate economy class air fares for domestic routes. According to him, airlines were free to fix the ticket rates after they take into account various factors including cost of operation and characteristics of service.

Apart from other suggestions, the said report has mooted the idea of having a separate department at the Civil Aviation Ministry to promote regional and remote connectivity.

If local media reports are to be believed, there has been a new twist to the policy review including the proposed 2 per cent cess on air tickets at a high-level committee meeting held at the Ministry of Home Affairs, which was chaired by the Home Minister Rajnath Singh. (See Lobbying). The government has second thoughts on the 2 per cent cess which was proposed by the Ministry of Civil Aviation in its draft civil aviation policy.

The cess, which could have fetched Rs 15,000 million to the exchequer per annum, was endorsed by the private players who had been hoping that they would get the much needed viability gap funding for plying on unserviced routes.

It is clear that the Modi government is reluctant to impose the 2% levy. It appreciates that there are various other means to generate the required Rs 15,000 million a year. This was pointed out earlier too. (See Air fares Cheaper).

By imposing 2% cess, LCC travel will become costly and will lose much of its charm. People may not find air travel attractive. The government looks towards the more opportunistic avenue for fund raising in aviation which is widely regarded with high esteem in rest of the world, namely, non-aeronautical revenue.

If properly addressed, non-aeronautical revenue can regularly generate much more than the required Rs 15,000 million a year. This conclusion is based on a practical fact. That is, in India for every 1 airline passenger arriving or departing at an airport, there are at least 10 people (relatives, friends, staff, vendors and other visitors) who are not  flying. This directly impacts the footfall at the airport which, in turn, adds to the non-aeronautical revenue. It ranges from the ad printed on the reverse side of the boarding pass to the fee paid at the car parking.

The need of the hour is an Aviation Policy which respectfully addresses this issue.

Who knows, the funds generated could be enough to feed all the air operators' costs.

5/20 Lobbying: Who will Prevail ?

NEW DELHI: Feb 18, 2016. 

Union Home Minister Rajnath Singh chaired a meeting to discuss the new civil aviation policy, which is likely to be finalised soon.  The meeting, chaired by Rajnath Singh, was attended by Civil Aviation Minister Ashok Gajapathi Raju, his deputy Mahesh Sharma, Finance Minister Arun Jaitley, Defence Minister Manohar Parrikar, Railway Minister Suresh Prabhu, Power Minister Piyush Goyal and Skill Development Minister Rajiv Pratap Rudy besides Civil Aviation Secretary R.N. Choubey, official sources said. 

This was the first ministerial-level consultation on the draft policy document after it was rolled out in October 2015. It also had invited comments from all concerned citizens. Deadlines were revised. So far discussions were held between the Ministry of Civil Aviation and the stakeholders in the sector like airlines, airport operators, among others.

Significantly, the meeting was held a day after the domestic airlines body Federation of Indian Airlines (FIA) representing the established airlines: the four private carriers -- Jet Airways, IndiGo, SpiceJet and Go Air had sought Prime Minister's Office (PMO) intervention in incorporating some of its concerns while finalising the draft civil aviation policy. It had called on Minister of State in PMO Jitendra Singh and submitted a memorandum, raising issues such as FIA's opposition to the removal of 5/20 norm, auctioning of additional seats to foreign players and the issue of substantial ownership and effective control, among others. 

The draft civil aviation policy contains key provisions, apart from others, like:-

• over 50 per cent FDI
• auctioning of bilateral rights
• regional connectivity scheme for places that are not served presently
• 2% levy on all air tickets to provide viability gap funding for regional connectivity, though many analysts believe that normal air fare would have been made 2% cheaper. There was no need for 2% levy.
• tax sops,
• setting up of no-frills airports 
• launch of "regional flights" at a minimum fare of Rs 2,500 per flying hour, although fares for an hour of flight are as low as Rs 1500 even today.

which will certainly have a bearing on the general economical well being of the country. There will be several financial implications when the policy comes for implementation. A number of such issues including the abolition of the so-called 5/20 rule, are under active discussion.

Under the decade-long rule, popularly known as the controversial 5/20 rule, an airline that has had five years of domestic industry experience and a fleet of 20 aircraft can qualify to operate on international routes. 

After the detailed discussions on the 5/20 issue in the meeting, the decision - whether to continue with the existing rule or tweak it or scrap it altogether - has been left to the Civil Aviation Ministry.

Present Scenario of Indian Aviation- Lobbying By Airlines going on.

View 1. FIA - GoAir + SpiceJet + Jet Airways + IndiGo. 

3 of the 4 FIA members carry "Unfair Business Practitioner Tag".

We represent 90 per cent of the Indian air industry and therefore "our views deserve to be heard before finalizing any policy." 

5/20 rule should stay, status quo be maintained. The new policy exempting the new airlines from this obligation will amount to injustice towards the already operating airlines. 

Creation of a new airline AirAsia India was a subversion of FDI rules. A lot of decisions in Vistara and AirAsia India are taken by their foreign partners. This is not fair. In 2013, BJP leader Subramanian Swamy had filed a PIL in the Supreme Court seeking to quash the government approval given to the AirAsia India.

View 2. Non FIA - Two startup airlines Vistara + AirAsia India. 

2-year old Indian carrier AirAsia India would "shortly" add two aircraft as part of its fleet expansion plans. Full service carrier Vistara has added 9th Airbus A320 in its Fleet.

5/20 rule should go. Let us also be given a level playing field.

Arun Bhatia, a stakeholder in AirAsia India: "All key decisions about AirAsia India are taken by its foreign parent Malaysia's AirAsia Berhad". 

The 5/20 rule is likely to be replaced by another rule that will ensure that domestic connectivity is not compromised after airlines are allowed to go international.

Abolition of the 5/20 norm will benefit new players like Vistara and AirAsia India, which will be allowed to fly international.  The FIA has been opposing abolishing the policy. The FIA has demanded that the matter of "effective control of carriers" be solved before the government changes international operation rules.   

Immediately after Bihar Assembly elections in November 2015 wherein the ruling BJP lost miserably, norms for FDI in Regional Airlines were eased. At present FDI limit in aviation is 49 per cent. Under open skies policy, foreign airlines can operate unlimited number of flights into and out of India.

In the memorandum submitted to the minister, FIA has demanded that they should also be accorded due importance, they should be kept in the loop during the consultations before finalizing the new policy. 

FIA has complained that while no other country in the world allows substantial ownership and effective control of its Airlines to be taken over by foreign Airlines, India has permitted some airlines to operate despite being effectively controlled by their foreign parent.

FIA has also met commerce minister Nirmala Sitharaman and conveyed its concerns on the current FDI rules.

In the middle of all this, the share prices of  the listed Indian aviation companies stayed volatile. InterGlobe Aviation (which owns IndiGo) stock closed at Rs 839.50, down 1.21 percent from its previous close, while the Jet Airways scrip rose 2.82 percent and settled at Rs 557.50; SpiceJet gained 4.11 percent to close at Rs 68.40 on the BSE.

(PTI inputs)

4 Million Aviation Jobs by 2035

With a growing population and increasing penchant to travel, India’s Civil Aviation industry is witnessing a high growth path. India is expected to become the third-largest aviation market by 2020 and the largest by 2030. The Ministry of Civil Aviation had hired ICRA Management Consultancy Services Ltd. (IMaCS) to undertake a comprehensive skill gap analysis of the Civil Aviation sector and to formulate a future road map for Skill Development in the Sector. IMaCs estimated that India's aviation sector will generate employment opportunities for nearly 4 million people during the next 20 years from now. The projection of jobs results from taking into account improvements in economic output and labour productivity. 

IMaCs conducted the study between August and December in 2015. It has now submitted its Draft Report. The ministry has sought comments from the public on the 'Draft Report on Comprehensive Skill Gap Analysis and future road map for Skill Development in Civil Aviation Sector' till February 26. The study, done by IMaCS, comes at a time when the ministry is in advanced stages of finalising the civil aviation policy. The new aviation policy is expected to be made effective from April 1, 2016. Ministry of Civil Aviation secretary R.N. Choubey confirmed to AIN during a recent civil aviation seminar in Delhi. The policy that has remained a draft for almost 20 years comes at an opportune time, as Indian aviation posts record growth rates aided by low oil prices & competitive fares. Once a policy exists, investors can start looking earnestly at investing in infrastructure-related projects.

The IMaCs report has suggested setting up of a National Civil Aviation Training Entity (NCATE). The study did not include the roles of existing training procedures. One routine exercise being the one wherein the DGCA approves a number of training schools. 100s of students pass out from such Institutes every semester. Only a lucky few get the job of their choice.

The IMaCs report, however, correctly points out the present job situation in Aviation. It seems to acknowledge the perception that employers in Indian Aviation normally prefer Ex-servicemen (ESM) rather than the pass-outs from so-called aviation schools. The report goes ahead to suggest an option:

- to train ESM and soon to-be-ESM to become trainers.
- services of ESM can be used as resources in the following segments:
    - Administration capabilities (across segments)
    - Security (across segments)
    - MRO of aircrafts
    - ANS
    - Airport operations

The process of induction of ESM through blended learning model has been outlined in the IMaCs report. The study has highlighted the need for skill development programmes across various levels in the aviation sector. The report estimates that by 2035, the Indian civil aviation sector, across the study segments of airport, airlines, cargo, maintenance repair and overhaul facility and ground handling will employ 0.8-1 million personnel directly and another 3 million indirect jobs will be created. However, it does not state that 1000s of students would also have then completed various aeronautical courses in several training schools, colleges, and universities spread across the length and breadth of India.

It is believed the new employment opportunity would demand several soft-skills and domain specific knowledge. IMaCs was asked to carry out the study on "skill gap analysis" in the sector and to formulate the road map for the future.
A number of factors have been overlooked while preparing the report by the IMaCs:
1. Most Important. For the last 60 years or so, Aviation personnel in India have actually been developing their skills while in service. A majority of them did not undertake any formal skill development course. A majority of such people became indispensible in their office while nearing retirement, because they can tell with their experience things which are not written in text books. The whole of Aviation sector shall remain indebted forever to these unsung heroes. Please also note that the inventors of the aircraft did not even attend school.

2. While mentioning job opportunities, IMaCs does not identify 'critical' and 'non-critical' areas in the context of an Aircraft job as recognized by the DGCA.

3. Without an iota of doubt, it can be stated that it is the 'non-critical' area which would demand manpower the most. The IMaCs report could have elaborated the "non-aeronautical revenue" aspect more. This ironically is precisely the answer to nearly all the woes of India's aviation.

4. The IMaCs report appears clueless to suggest the mechanisms to link aviation jobs with degrees, diplomas, and certificates awarded by various existing training schools, colleges and universities.

5. Big Aviation companies like Air India do work on in-house training. Other regular Airlines and aircraft operators do provide ‘on job training’ and/or apprenticeship. IndiGo teams up with other flying schools to produce its pilots. 

Setting up of a National Civil Aviation Training Entity (NCATE) might be a redundant exercise. The need of the hour is to fix the existing loopholes in the system and strike a balance between the academic curriculum and Industry needs. In the absence of it, a confused situation prevails all over.

With a population of 1.2 billion, there is a huge market waiting to be tapped in India. But unfortunately, India’s aviation sector is lagging behind many other countries with similar demographics. As per industry estimates, the sector is expected to grow more than 7 times in next 10-12 years; with a backdrop of 20% growth in 2015, it might be a good time to fix some of the issues that have been preventing the required growth of aviation sector for years.