Why the nod for 6 new airlines won't cure Indian aviation sector's ills

The government has paid enough lip service in recent weeks on creating airport infrastructure, boosting regional connectivity and enhancing competition among existing airlines. It has been speaking of setting up hundreds of no-frills airports in tier II and tier III towns, offering incentives for regional airline startups and getting jet fuel taxation down. But on the ground, a lot of work in terms of policy formulation and tying up loose ends remains to be done.

Just yesterday, Minister of State for Civil Aviation GM Siddeshwara said in the Lok Sabha that his ministry has so far identified 50 locations with potential for small airports in various states. But how will these airports be set up in the absence of a blueprint for no-frills airports, which has not even been approved by aviation regulator DGCA?

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Will state governments be asked to share costs of security, water and electricity? And what about traffic potential at remote locations? A ministry official had earlier indicated that no-frills airports which cost just Rs 70-80 crore will be constructed in areas which fall in the tourism circuit or backward areas where connectivity needs to be boosted.

Similar short-sightedness seems to have driven the ministry to approve six new airlines in the last one month. An article in Mint newspaper mentions Air One Aviation Pvt. Ltd, Zexus Air and Premier Air which eventually want to become national airlines. And Turbo Megha, Air Carnival and Zav Airways which want to operate as regional airlines.

The regional airline policy has been around for years but most aspirants have not been successful in the past because of myriad issues and lack of encouragement from respective state governments. Instead of tying up loose ends and ensuring that these small players are viable, the ministry has shown undue haste in clearing such proposals.

It is still debating whether to allow non-scheduled and small operators to get scheduled operator permits and alliances with big players to fill up seats on lean routes in the hinterland. This suggestion was earlier mooted by the DGCA. When these arrangements are yet not finalised, why let regional airlines face the same issues they grappled with over the last few years?

The only regional airline which has succeeded in recent memory is Air Costa. The airline operates four aircraft with 34 flights across 9 cities mainly in the south. It connects Bangalore, Hyderabad and Chennai with smaller cities using two Embraer aircraft types - a 67 seater E170 and a 112 seater E190.

Air CostaCFO Vivek Chaudhary told Firstbiz that the airlinehas succeeded because of its judicious approach to new routes, fleet size and the fact that it chose these two aircraft after evaluating routes and demand potential. In three of the last six months, Air Costa has seen 100 percent on-time performance and its aircraft occupancy last month was 82 percent, among the highest.

But Air Costa faces issues too. Chaudhary said his airline has been negotiating with state governments to get them to underwrite some seats and lessen taxation on jet fuel.

Some, however, see the developments as a positive one.

Amber Dubey, partner and India head of aerospace and defence at global consultancy KPMG said, “It is a great development. KPMG believes that the next phase of growth of Indian carriers will come from no frills airports (NFA) and regional carriers. This will prevent large national carriers from wasting fuel on half empty planes on regional routes just to meet DGCA’s RDG norms. For this, MoCA should allow seat trading and code shares between national and regional carriers.”

He added that state governments should provide 10 year tax holiday and seat subsidy to regional carriers on competitive tender basis.

But even on approving three new proposals for setting up national airlines the ministry seems to have acted in haste. It is all very well to speak on increasing competitiveness among airlines so consumers benefit, but the existing Indian airlines are already in the red (except for IndiGo). Also ultra low cost airline AirAsia has begun flights while full service airline Tata-SIA is expected to begin from the coming winter schedule.

When seats on offer are already more than the demand in the domestic market, why allow more airlines to come in and face financial difficulties? Shouldn’t the government first tackle the issue of high taxation on jet fuel?