Vistara says expansion plans on track, 5/20 or no 5/20 rule

The 5/20 rule bars Indian airlines from flying overseas unless they have completed five years of Indian operations and have a fleet of 20 aircraft.

Sindhu Bhattacharya October 06, 2015 21:45:45 IST
Vistara says expansion plans on track, 5/20 or no 5/20 rule

New Delhi: With Vistara, the Tatas are hoping to be third time lucky in the aviation sector. This airline is a joint venture between Tata Sons and Singapore Airlines and from day one, Vistara has been lobbying for removal of the 5/20 restriction. But what will Vistara do in case 5/20 rule were to continue? Chairman Prasad Menon asserted today that the airline's plans would remain unchanged - whether 5/20 restriction is lifted or not.

Vistara says expansion plans on track 520 or no 520 rule

A Vistara aircraft.

The 5/20 rule bars Indian airlines from flying overseas unless they have completed five years of Indian operations and have a fleet of 20 aircraft. This means Vistara and sister airline AirAsia India cannot do any overseas flights for the first five years. The ministry of civil aviation is working on a draft civil aviation policy where it will reveal its mind on the 5/20 issue too, apart from a range of other industry issues. Indications are that one option the ministry will propose is that new airlines like Vistara be allowed to fly overseas immediately. The only condition could be a commitment for increased domestic connectivity.

AirAsia India (where Tata Sons holds a minority stake) has already made it clear that its expansion plans will remain stalled till the government clarifies its stand on the 5/20 restriction.

But Vistara's Menon sought to downplay the importance of 5/20 removal on Vistara's expansion plans. Speaking to reporters, he said, "Our 7th aircraft arrived in September; our 8th will come this month and the 9th next month. Exactly as (we had) planned. The ones coming next year will come in exactly as planned. Let me make it clear that 5/20 or no 5/20 we have committed for the long term."

He was speaking after releasing of a report on 'Maximising the contribution of aviation to the Indian economy'. The report has been prepared by the Centre for Asia Pacific Aviation (CAPA) and commissioned by Vistara. The report calls for the abolition of 5 year/20 aircraft rule.

Vistara and AirAsia India have been calling for the removal of the 5/20 rule while Air India, Jet Airways, SpiceJet and IndiGo have been asking that the restriction continue to apply to these two new airlines.

A director on Vistara's board, Mukund Rajan, pointed out that airlines derive benefits from flying overseas It allows them to hedge costs such as those incurred for leasing aircraft. It also allows them to sweat their assets as longer flights mean more aircraft usage. Besides, overseas flights allow all airlines to get cheaper fuel.

Only 26 percent of bilateral flying rights being used by Indian airlines now
Prasad said it will be difficult to say which of the existing airlines will go under and which will do well if there is a change in the rules. "5/20 is only one issue though it is an important issue. What has come out well in this report is that we are also facing a lot of push points in different areas."

He spoke of infrastructure constraints, heavy taxation on ATF making it difficult for all airline to contain costs. The CAPA report says that though fuel prices have declined by around 40 percent since the last quarter of 2014, they still account for 30-35 percent of airline's operating costs in India.

The report also says removal of sales tax from ATF will reduce its price by 20 percent and reduce airlines' operating expenses by 6-7 percent.

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