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Flying trouble

Many shortcomings of the new aviation policy

The government's decision to dilute the rule that required airlines to fly on domestic routes for five years and have a fleet of 20 aircraft before they could fly abroad is at best a halfway reform. While it has done away with the five-year stipulation, the 20-aircraft norm stays very much in place. This has ostensibly been done to ensure that domestic flyers are not under-served. This defies logic. Carriers will deploy capacity wherever there is traffic, and by all indications India is a booming market. So coercing them to fly more on domestic routes, even if they don't want to, doesn't make sense.

The half-hearted approach to reforms in the civil aviation sector is also evident as the new policy fails to address the concerns of an Indian entrepreneur who may want to start with international operations. That, even under the amended rules, is not possible: the new airline will first have to scale up its fleet to 20 aircraft, which can cost a lot of money and take a lot of time.

The older airlines had lobbied hard for the continuation of the 5/20 policy because its removal, they had argued, would have given an unfair advantage to newcomers. On the other hand, new airlines had argued that the 5/20 policy had outlived its utility and, therefore, needed to be scrapped. By reforming just one half of the policy, the government has tried to keep both sides happy. That is why new airlines Vistara, which has 11 aircraft, and AirAsia, which has six, have been guarded in their response to the policy: it will be a while before they can fly on international routes. The other significant initiative announced by the government is with regard to regional connectivity: it has decided to develop non-operational airports, at a cost of Rs 50-100 crore each, and those carriers that fly to these airports will have to adhere to a fare cap of Rs 2,500. If the cost of operations is higher than that, the balance will be reimbursed to the carrier: four-fifths by the Centre and the rest by the states concerned.

While the intent to improve regional connectivity is good, the administration of this viability gap funding could be messy. It will require the Centre as well as the states concerned to go through the books of the carrier, and there could be disputes over inclusion of certain costs while calculating fares. This has the potential of becoming another hotbed for scams and controversies. If jet fuel prices shoot up, and the demand for this subsidy comes from all quarters, it will lead to unnecessary bureaucratic interference in the business, which is avoidable if the country wants to become business-friendly. It would also result in an additional subsidy burden that the Centre as well as the states will have to bear at a time when there is need for reducing subsidies by targetting them for the needy. It is also debatable if the government should at all be subsiding air travel even if that were meant to promote regional air connectivity.

The other issue pertains to an airline's need to fly its aircraft for as many hours as possible to improve its operational efficiency. This would require it to connect a cluster of small towns and cities in the region. This will have to be kept into account when the Union civil aviation ministry, in association with the states, starts identifying the airports that it plans to develop. Hopefully, these issues will be addressed as the ministry finalises the blueprint for regional connectivity in the next 10 days or so.