Rival airlines up lobbying against relaxing intl ops rules for Tata-SIA

Suddenly, there is a frosty silence at the mention of the 5/20 rule in the Ministry of Civil Aviation. This rule makes it mandatory for domestic airlines to have a 20 aircraft fleet and five year domestic operation record before they can be allowed to fly abroad. Minister Ajit Singh has said many a times in the recent past that this rule is discriminatory and needs to be relaxed.

Last month, senior Ministry officials had confirmed that a Cabinet Note was being prepared on the matter and that the regulator DGCA was being consulted before a proposal is sent to the Cabinet. The sense that time was that domestic airlines will be allowed international operations without having to fulfill either the 5 year domestic operation requirement or the 20-aircraft rule. But something has obviously changed in a matter of weeks.

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Two separate officials in the know dismissed any concerns over the 5/20 rule, with one saying “why does it need to be amended now? The only contender which wanted this relaxed was GoAir but it is now ordering aircraft to conform to the fleet size”. This official shrugged when asked about new airlines - AirAsia India and Tata-SIA - which are eagerly awaiting the lifting of five year domestic operations’ restriction to go international. “Let these airlines start flying, We shall see,” the official quoted earlier said. AirAsia India is expected to fly from the summer schedule of 2014 while Tata-SIA may take to the skies by the next winter schedule.

The second official said there was no movement from the minister’s office on this proposal and it may now be examined only by the next Government at the Centre.

There have been some murmurs in the recent past about incumbent airlines, specially large low-cost airlines, opposing any move to relax this rule. Their logic? Why should things be made easier for new entrants when existing domestic airlines have had to wait for five years before being allowed to fly abroad? Perhaps, the lobbying by incumbent airlines has succeeded.

The 5/20 rule is unique to India and has historically been seen as needless restriction on Indian airlines. When startups such as Air Arabia and AirAsia were allowed to fly into India by their respective Governments, it obviously put our airlines at a disadvantage because of the five year domestic operation clause. These airlines were not restricted by any such conditions by their respective Governments.

A recent editorial in the Business Standard newspaper pointed out that ministries of finance and corporate affairs as well as the Planning Commission have repeatedly stated that there is no logic to the 5/20 policy. In January last year, a study commissioned by the ministry of corporate affairs unequivocally said the barriers to international operations were anti-competitive because they limited the number or range of suppliers and reduced their ability and incentive to compete. As the report pointed out, fleet size requirements incur a large start-up cost for domestic airlines and the policy also left domestic operators worse off at a time when foreign operators’ services to and from India were steadily expanding.

Most importantly, the report said, the policy “biases the market towards big airlines which already have economies of scale. Furthermore, this rule incentivises mergers”, the editorial said.

Aviation consultancy CAPA, other aviation experts have also repeatedly condemned the 5/20 rule. CAPA said earlier this year that such a policy has enabled foreign airlines to capture a larger share of the international market at the expense of home carriers. International operations are crucial for airlines which are looking for ways to rationalise their cost base. India already has one of the highest costs of operation for airlines, thanks to a heavily taxed jet fuel, so that airlines were compelled to pick up cheaper fuel abroad to manage costs.Also, this way their aircraft are better utilised, again bringing in gains.

Like we said earlier, the biggest losers in case this rule is not scrapped would be AirAsia India and Tata-SIA. In fact, officials at Tata-SIA had said that they would apply for permission to fly abroad the minute the 5/20 rule is relaxed.