Civil aviation policy cleared: New India poised for take-off, to fly cheap

The aviation sector is taking wings and travellers can now fly higher. The Union Cabinet on Wednesday cleared the draft civil aviation policy, which was in the making for over a year now.

The policy, which aviation secretary RN Choubey said was driven by need to bring down the cost of fliers, pushes for development of regional aviation by capping fares at Rs2,500 (including taxes) for a one-hour flight between a metro and a small city under the regional connectivity scheme (RCS). For less than half an hour flight, the government proposes to set a ceiling of Rs1,250.

For example, if a family of four travels from Delhi to Bathinda in Punjab by air, then an airlines would not be able to charge more than Rs5000 for four tickets. Civil aviation minister Ashok Gajapathi Raju said the fares could be lower than the cap but would not exceed it.

These fares on flights connecting unserved airports – tier-2 and tier-3 cities like Bhatinda, Bareilly, Jaisalmer and others – to metro airports would be subsidised by a viability gap fund (VGF) that would be created from a cess levied on air tickets on major routes.

The fund would be split between the central and the state governments in the ratio of 80:20. For the North Eastern states it would be 90:10. Choubey said the draft RCS, that would specify how it would work, will be out in 10 days.

"From airlines side, there is going to be two streams of income. One through tickets and the other viability gap fund. And this process has to be transparent," said the minister.

In what could be termed a bold step, the ministry has gone ahead and scrapped the controversial and discriminatory 5/20 rule, which did not allow domestic airlines with under five years of experience and less than 20 aircraft to fly overseas. This rule, introduced in 2004, had stunted the growth of new carriers, who had to wait for five years before launching an international flight.

Legacy carriers like Jet Airways, SpiceJet, IndiGo and GoAir had aggressively opposed the removal of rule. The new provision for the launch of international operation is in favour of new airlines like Vistara and AirAsia, which are both owned by Tata along with foreign partners.

The government now mandates that airlines can now start international operations if they deploy 20 aircraft or 20% of the total capacity, whichever was higher, in the domestic market.

Phee Teik Yeoh, CEO, Vistara said he would have preferred complete abolition of the 5/20 rule.

"We would have preferred, of course, that the 5/20 rule be completely abolished to ensure that Indian aviation achieves its full potential. As an Indian airline, we are committed to our expansion plans in India and are now looking forward to providing connectivity to travellers to/from India promising a new feeling in global skies as well," he said.

Tony Fernandes, promoter of Malaysia's AirAsia group, was more appreciative in his tweet: "Initial reports on India is superb. Of course I think 20 aircraft is too many but thank you @narendramodi. Big day for indian Avaition (sic)."

The policy also paves the way for the development of no-frill airports and promotion of maintenance, repair and overhaul (MRO) centres in India through custom duty rationalisation on tool and too kits.

It looks at development of airports by various states through different routes and provided clarity on setting up of greenfield airports within 150 radius of an existing operational airport. It has also come out with a comprehensive policy to promote helicopter services.

It meets the long pending demand of the airlines by allowing them to carry out their own ground handling. This, Choubey said, was done in the interest of bringing down the cost and eventually the fare.

Peeyush Naidu, partner, Deloitte India said with the announcement of the civil aviation policy the ministry had consolidated its policies.

Pankaj Sharma, head of equities, Equirus Securities, said the provisions of fare caps and additional cess to create a fund were against the free market principles.

The policy also touches upon improving the employability of the commercial pilot licence (CPL) holders, who are rendered jobless after their course because of the mismatch in the demand and supply of pilots.