Airlines Deals

The new aviation policy, in the works for nearly a decade now, couldn’t have come at a better time for India’s new crop of airlines. The carriers hope the new policy, expected to go before the Union cabinet in the coming weeks, will free them from a set of tight regulations, which they say are anachronistic and penalise them. With the air-travel market growing 30 per cent, they are lobbying for a regulatory regime that will be easier on their operations (and, bottomlines).

The airlines’ list of expectations is topped by a demand not to treat air travel as a ‘luxury service’ and reduce tax on fuel and landing charges to make air-travel accessible to more people in the country. Aviation turbine fuel or ATF prices - at around Rs 35,000 per kilo litre - in India, for instance, are 30 per cent-50 per cent higher than what it sells internationally for mainly on account of taxes and government levies. Given that escalating fuel prices make up for up to two-fifths of operating costs of an airline, says Siddhant Sharma, chairman of SpiceJet, this is hardly good news.

The government seems to be listening. Expressing concern over ATF prices, civil aviation minister Praful Patel said recently that he would take up the high incidence of tax on fuel with finance minister P Chidambaram. Says Saroj Datta, Jet Airways’ executive director, “The policy should proactively tackle the factors that affect the viability of the civil aviation industry such as high taxes and duties on ATF, high landing and navigation charges and inadequacy of infrastructure, which adversely impacts operating costs.” If ATF is brought under the Declared Goods list (which caps sales tax at 4 per cent), the savings for SpiceJet would be around Rs 200 crore, says Sharma. The sales tax on fuel is as high as 39 per cent currently in some states.

Another major concern of the airline industry relates to the paucity of infrastructure to cope with the huge increase in traffic, both on the international and domestic sector. Air Deccan’s managing director G R Gopinath suggests airport infrastructure be developed on a war footing, especially in the non-metro sector. “Otherwise growth cannot be sustained,” he says. Airports are so crowded that planes often hover over airports or wait in queue on tarmacs for up to 30 minutes before they get clearance for landing or take-off.

Minister Patel also said the modernisation of 35 non-metro airports would be completed by 2009 but a final decision has not been taken regarding the modalities for beefing up the airports at Kolkata and Chennai. Broadly, he said the Airports Authority of India would take up modernisation of the aeronautical facilities of the airports while private participants would be invited to develop the non-aeronautical parts. Third on the priority list of the airlines is the desire to have an independent regulatory authority for the sector. “The sector needs an independent regulator on the lines of the Telecom Regulatory Authority of India,” says SpiceJet director, Ajay Singh. “The telecom sector is better administered and saw major growth after TRAI was set up.”

Gopinath too feels that the regulatory authority should be responsible for rationalisation and monitoring of services and fees and the use of other airport resources. “This is pertinent in monopoly situations where an airport authority can charge high rates. The regulatory authority should be responsible for arbitration as they are in UK,” he says.

Full service airlines such as Jet Airways also argue for a better allocation of routes among Indian carriers. “The new civil aviation policy should energise the government’s reform process further by framing equitable policies for the allocation of traffic rights and frequency/capacity entitlements between publicly-owned and privately-owned eligible carriers and eliminate current restrictive policies whereby certain routes like the India-Gulf routes have been made available only to government-owned carriers,” says Datta. India currently allows carriers to fly to the US, Europe and Southeast Asia but bars them from plying crowded Gulf routes.

It’s not just allocation of international routes that irks the airlines; it is also the non-remunerative sectors that the government forces them to fly to under its ‘route disbursal guidelines’. Says Singh, “The government should apply category specific restrictions. Carriers with large aircraft should not be made to follow the route disbursal guidelines because the load factor on such routes tend to be low.” Therefore, operations on such routes are unviable. Patel counters that unless such routes are mandated to the airlines, remote areas like the northeastern states will not figure on the airline map.

Gopinath suggests that India should benchmark airworthiness, training and maintenance to developed markets. He says that rules and regulations of training requirements should be brought in par with European Union’s Joint Airworthiness Requirement to ensure India keeps pace with technology and aviation practices.

Lighter regulation regime for airport handling is another demand by some large carriers. The new civil aviation policy, Datta says, should allow private carriers to self-handle their flights and allow ‘third-party handling’, that is provide handling facilities to other Indian and foreign airlines operating flights to and from India. He also wants the policy to take a liberalised approach to marketing alliances between Indian and foreign carriers, and freely allow inter-carrier arrangements as code-sharing, frequent flyer partnerships, joint operations, among other such arrangements.

Overall, India’s airline companies expect the new civil aviation policy to rationalise taxation on fuel, set out a clear roadmap for better infrastructure, seed an independent regulatory authority and lay the foundation for an equitable platform for both the public and private players in the market. The government, on the other hand, has to juggle between an easy source of taxes and social obligations of an increasingly important transport industry. Whether the industry and government meet on common ground will be known in the coming months.