India clears aviation policy, eases overseas flying rule

By Aditi Shah

NEW DELHI (Reuters) - India has made it easier for the country's airlines to fly abroad as part of the first set of comprehensive rules governing civil aviation which are designed to boost air travel and economic growth.

Prime Minister Narendra Modi's government presented the national civil aviation policy, which has been years in the making, as a bid to make flying more affordable for India's expanding middle class, to bolster competition and to get more of the country connected.

Under the policy, 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.

"We want airlines to start flying quicker so there is more competition," civil aviation secretary R. N. Choubey told reporters after the cabinet cleared the policy.

Easing the so-called 5/20 rule marks a further step towards liberalising India'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 rule, unique to India, had sought to encourage the growth of the nascent domestic aviation industry, but many officials say it now inhibits Indian carriers from increasing their share of international travel.

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.

Shares in Jet Airways, InterGlobe and SpiceJet rose on news the civil aviation policy had been approved.

Vistara, with 10 jets, is at least a year away from having the 20 planes needed to fly abroad, meaning that there is no immediate threat to the established players. AirAsia India has only six A320 planes and its fleet growth plans remain unclear.

CAP ON FARES

The government also announced it would cap base fares on regional routes at 2,500 rupees ($37) per hour of travel to get more people flying, with the government providing funding to make it viable.

Funding for new "no-frills" airports would also be made available and excise duty on fuel would be cut, Choubey said.

India's air travel market has boomed in the last decade as it opened up to competition, ticket prices were slashed and the number of people wealthy enough to travel ballooned.

Still, very few Indians have enough money to fly - with 0.04 annual trips per capita against 0.3 in China.

Amber Dubey, head of aerospace at KPMG in India, said he welcomed the focus on regional connectivity and replacing the 5/20 rule, predicting it would accelerate growth.

"The National Civil Aviation Policy ... is likely to enhance that further by taking flying to the masses through a slew of policy initiatives and fiscal and monetary support," he said.

Dubey faulted the new policy, however, for remaining silent on the issue of setting up an independent civil aviation authority and on addressing whether to privatise lossmaking flag carrier Air India.($1 = 67.1200 Indian rupees)

(Additional reporting by Nigam Prusty; additional reporting and writing by Tommy Wilkes; editing by Douglas Busvine and David Clarke)