Airlines set to face cap on airport slots

Govt proposes move to curb monopolistic growth of airlines

The government has proposed to cap the number of take-off and landing slots an airline can hold in congested airports. The move, which could turn out to be controversial, is meant to check monopolistic growth of airlines. This comes after rival carriers accused IndiGo — the largest Indian airline by market share — of using its dominant position to control pricing in the market.

According to the plan, an upper limit cap will be set for the percentage of slots an individual airline can hold in any congested airport. If the threshold is reached, the particular airline will be the last in preference for new slots and will be eligible only if other carriers reject it. The number of slots an airline can hold has not been determined and the government has asked for suggestions on it from airlines and airports.

At present, slots in India are allocated by the slot coordination committee of airport operators, according to the Worldwide Slot Guidelines drawn up by the International Air Transport Association. According to these norms, an airline can keep a given slot from the previous season as long as it has used the slot 80 per cent of the time. Also, 50 per cent of slots freed up under this “use it or lose it” policy is provided to new airlines and the rest to legacy carriers.

This policy has often been criticised for favouring larger incumbent airlines and creating an entry barrier for new, smaller airlines. This is because incumbent carriers are unwilling to surrender peak hour slots at metro airports.

New airlines such as Vistara and AirAsia India have been vocal about the issue, pointing out that the constraint of slots has impacted their growth plans. “A formula can be reached, so that everyone gets a fair share. New airlines need slots to grow or else there will be a duopoly or monopoly,” Sanjiv Kapoor, chief strategy officer at Vistara, had said in an interview earlier.

With such a formula, customers will get an opportunity to experience new services, while fares can be kept in check, according to Kapoor.

The situation has turned complex, with scarce growth in runway capacity at major airports, even as airlines are inducting new planes at a fast pace. In the current backdrop, it’s impossible for airlines to add new flights without scrapping an existing route. For instance, during the ongoing winter season, airlines haven’t been able to add any new flights in the peak 7 am to 10 am slot at Delhi airport.

Industry sources said the government move follows concerns expressed by SpiceJet, Vistara, and Jet Airways over IndiGo using its size to undercut fares and bleed rivals. The rival airlines fear that the financial stress of Jet Airways, which has forced it to cut capacity, will further lead to consolidation by IndiGo.

IndiGo, by virtue of its size and aggressive induction of planes, has successfully obtained a higher share of slots at most metro airports. In 2018, Indian airlines added 120 planes, of which 55 were from IndiGo alone.

IndiGo, on its part, has rubbished claims of monopolistic move or any attempt to undercut rivals. “At IndiGo, it is never our practice to take the lead in discounting fares,” the company’s co-founder and interim Chief Executive Officer Rahul Bhatia told analysts, when quizzed about the business strategy. When, due to the current industry environment, other airlines, desperate to raise cash, were dropping fares, IndiGo had no choice but to match them, Bhatia said.

Experts are divided over the government’s attempt to intervene in a sector which has gained from liberalisation. “The government should ideally concentrate on building infrastructure rather than punishing a healthy company for its own failure, a lawyer representing major private airlines argued. Taking away slots from a player, which has shown dedication to the local market, as rivals are unable to compete, is not legally tenable,” the lawyer said.

However, there are others backing the government move, saying the step would encourage competition. Lalit Bhasin, managing partner at Bhasin and Co, said, “I would call it a pro-market move, which will encourage competition, making it easier for new airlines to do business and ultimately benefitting the passenger.”