The agency warned airliners like IndiGo, SpiceJet, Jet Airways, GoAir to take a cautious stance while expanding in regional areas. They said, airlines should only enter regional areas after a thorough background research on the performance of regional airlines.
The Aviation Minister Ashok Gajapati Raju recently said that the new Civil Aviation policy will be out by year-end, which has sent discussions in the industry into full throttle.
The draft civil aviation policy unveiled earlier this month proposed that tax incentives for airlines, a 2% tax cess on air fare to help aid regional connectivity, doing away with the 5/20 rule, and more.
However, ratings agency, India Ratings has said that the draft civil aviation policy failed to address structural issues to ensure long-term viability of major players like full service carriers and low cost carriers.
The agency warned airliners like IndiGo, SpiceJet, Jet Airways, GoAir to take a cautious stance while expanding in regional areas. They said, airlines should only enter regional areas after a thorough background research on the performance of regional airlines.
In-Ra said that while improving the regional market will see an aggressive involvement of full service carriers and low cost carriers, it might end up pressurising the profitability of regional players.
Increasing domestic passenger traffic
The government has set a target of increasing the domestic passenger traffic to 30 crore by 2022 from the current seven crore passengers. The agency says that this means that the idustry will have to register an annual CAGR of 23%, "which is challenging amid the global slowdown because even during the boom period, FY04-10 the airline industry had registered an annual CAGR of 18.4%.
5/20 rule
According to the current 5/20 rule in the aviation sector, an airline has to fly domestic routes for a minimum of five years and have a minimum of 20 aircraft fleet before they can go operational on international routes. The report states that regional players such as Air Costa Aviation Private Limited (Air Costa), Abc Aviation And Training Services Private Limited (FlyEasy), Air Pegasus Private Limited (Air Pegasus), and Turbo Megha Airways Private Limited (TruJet), stand to benefit if this rule is done away with. However, the report said that established low cost carriers and full service carriers may not be happy as they have already adhered to a majority of this rule and it stands to give undue advantage to the new players.
Air Turbine Fuel
Presently, the tax on air turbine fuel (ATF) ranges between 4-30%. Under this draft policy, the state will be providing free land and security, as well as water and power at the concessional rate. The agency believes that resistance by state/non-compliance may result in rise in fuel costs which will make the whole model unviable.
As per the draft policy, foreign aircrafts brought into India for maintenance, repair and overhaul (MRO) should stay for the entire period or up to six months. Currently, that period is 60 days. Though this move will provide passenger traffic during the beginning and the end of the stay period in India, but will fail to attract the international players flying across Asia and the Middle East to avail MRO service in India, the agency said.
The agency suggests, international aircrafts to form around 30% of the total aircraft mix being serviced by the Indian MROs in the long run, in the event the policy is implemented well.
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