New airlines might find flying abroad tougher

The Centre has made its proposed credit-based system for allowing new airlines to fly abroad more stringent.

In January, the Union civil aviation ministry had proposed a ‘domestic flying credits’ system replace the current ‘5/20’ rule to help new airlines such as Vistara and AirAsia India start international operations.

On Wednesday, the ministry proposed new airlines keen to fly abroad gain a minimum 300 DFCs before they start flights on long-haul routes (more than six hours long), up from its earlier proposal of 200 DFCs.

However, airlines will need at least 600 DFCs to start flights on short-haul routes, including in the Persian Gulf countries and Southeast Asia, sources said.

One domestic flying credit is equal to one crore available seat-km or revenue earning passenger-km.

Airlines will earn these credits on the basis of capacity deployment. 

Credits earned will depend on routes served and be calculated by multiplying capacity deployed (using the sector unit, available seat-km) with a unit.

According to this, airlines deploying flights on non-trunk routes, such as the Northeast, will get more credits than those flying on category-I routes connecting 20 major cities.

The government’s contention is Indian carriers are not using traffic rights on long-haul routes, while short-duration sectors such as the Gulf have enough capacity.

Also, this will discourage start-up airlines from transferring Indian traffic to aviation hubs in the Gulf or Southeast Asia.

Airlines have sought two weeks to respond to the ministry’s proposal.

The ministry will send a proposal to the Union Cabinet by early April and inter-ministerial consultation will be held soon, sources said.

According to present rules, only a five-year-old airline with 20 planes is allowed to fly abroad.

This has led to airlines delaying expansion to foreign destinations and to huge spending on building fleets.

The proposed DFC rule will help old airlines such as IndiGo, SpiceJet and Jet Airways to further expand international operations and new ones such as Vistara and AirAsia India to fly abroad, though the latter’s services will be limited to long-haul destinations. However, all airlines will have to necessarily maintain 200 DFCs every year, sources said.

The ministry has also linked the relaxation of its ‘5/20’ rule with deployment of capacity in remote areas.

At present, local airlines must deploy a tenth of their capacities on key routes to Jammu & Kashmir, the Northeast, Lakshadweep and the Andaman & Nicobar Islands.

In Wednesday’s meeting, the ministry proposed to change the formula for capacity deployment in the Northeast and J&K routes.

Sources said once a Cabinet note is prepared, the ministry will set a cut-off date when the translation of credit points for the old as well as new airlines will begin.

Industry experts were disappointed with the move and said this would raise the barriers further for new airlines wanting to fly abroad.

“I am extremely disappointed with the government’s new proposal, which is very confusing, makes regulation more complex and significantly increases barriers to market access for the recently launched new Indian carriers,” said Kapil Kaul, chief executive (South Asia) of aviation consulting firm CAPA.

Kaul said the proposed norms would protect the incumbents, especially those with short-haul international focus.

In the current dispensation, Jet Airways, Air India, SpiceJet and IndiGo qualified to fly abroad. However, GoAir, with 19 planes, will be left out.

Vistara, the Tata-Singapore Airlines venture which started operation recently, and AirAsia India, operational since last year, will no longer have to wait till 2020 to go abroad.

To increase incentives for flying in remote areas, the Union aviation ministry has mooted waiving off lending or parking charges for smaller aircraft at all airports.

The Union ministry has also proposed an arrangement under which a fourth of the credits could be purchased from non-scheduled operators.

According to another clause, airlines flying to non-operational airports domestically for two years will get five credits, sources said.