Open Skies: It's not exclusive to Air India anymore

Private-sector airlines in India will be celebrating after the government announced that all domestic carriers would now be allowed bilateral air traffic rights to fly to overseas destinations.

Until now, Air India enjoyed a special privilege called the Right of First Refusal, which entitled it to operate the full capacity signed between India and another country under an air services agreement (ASA). Only if Air India refused to operate a certain route was a private-sector airline allowed to fly the same.

Now, all Indian carriers, including Air India, can use the available bilateral rights to the maximum permissible limit under various ASAs.

[caption id=“attachment_213761” align=“alignleft” width=“380” caption=“A much needed private sector reform. Reuters”]  [/caption]

More from Business

Hyundai India’s Rs 27,870 crore IPO oversubscribed by 2.28X, largely driven by institutional investors How Indian fintech startups are driving Malaysia’s UPI-like digital payments revolution

The government had imposed a freeze on private carriers expanding abroad in March last year in an attempt to protect financially strained Air India from more competition on foreign routes.

So, right off, the decision is a(nother) nail in the coffin of the state-run carrier. Don’t shed too many tears for it though the airlines, while hogging the rights, has been grossly underutilising them: out of the total bilateral traffic rights available with India, Air India has been using only 30-35 percent.

Obviously, that was far from ideal, especially when private-sector airlines like Indigo and SpiceJet have been pushing the government to let them operate international flights for a long time.

Impact Shorts

More Shorts

Tata Harrier EV vs Mahindra XEV 9e: Design and road presence compared

As Trump weaponises tariff, Fed sees a bigger worry: Not jobs, but rising prices in America

Without doubt, the decision to allow private-sector airlines to operate bilateral flights in competition with Air India, is a good first step in removing one of the key bottlenecks that have been crippling the cash-strapped aviation sector.

Of course, expect Air India’s performance to go from bad to worse: the carrier has been steadily losing local market share to private carriers in the past few years; expect the same trend in international routes once private carriers scale up their international operations.

In comparison, the situation of private carriers could improve to some extent. At the moment, the aviation sector is in such bad shape in India that airlines lose about $25-$50 every time a passenger boards an aircraft, the Centre of Asia Pacific Aviation said recently. Yer, ironically, India is also one of the fastest-growing aviation markets in the world, with passenger traffic growing in leaps and bounds. Bad business and government policies, however, have obstructed them from making money off that boom.

Operating international flights will help private-sector airlines gain access to cheaper fuel, which should help in lowering their costs. Currently, the cost of jet fuel is the highest expense item for airlines in India, accounting for nearly 50 percent of their operating cost bills. High taxes on jet fuel are the reason for that; buying fuel overseas will reduce the burden of those taxes.

In addition, operating late night-flights could improve fleet utilisation.As one airline executive told Business Standard, “Low-cost carriers like us utilise aircraft for 12 hours a day and that can increase up to 18 hours in the case of international operations.”

The only hitch is that don’t expect the financial benefits to be immediate. With the eurozone crisis continuing to roil the global economy and the US still in the doldrums, international travel demand is down in the dumps right now. Global aviation body IATA estimates the airline industry could face net losses of more than $8 billion.

So, while India’s airlines will be eager to fly to international destinations, will passengers?

Nevertheless, in terms of sector reforms, this is perhaps one of the better moves from the government, unlike an earlier impractical proposal to allow airlines to directly import jet fuel.

Finally, some light at the end of the tunnel for private-sector airlines!