INDIA FLYING

The latest in the country’s aviation industry

While writing this article in November 2017, I had completed a year of heavy domestic and international travel. This included flying out of a few tier II towns (Porbander, Lucknow and Guwahati) and some tier I cities (Delhi, Mumbai and Bengaluru), where I observed a few evident changing trends such as airlines’ on-time performances, easy connectivity and increased security at airports.

The improved on-time performances by airlines could be on the basis of the new rule that was imposed by the DGCA (Directorate General of Civil Aviation) back in September 2016. According to the new regulation, if the flight fails to takeoff within five minutes of getting a green signal from the airtraffic control, it will have to be pushed to the back of the queue where it will have to wait until the next available time slot for takeoff.

Earlier, if the flight scheduled to takeoff didn’t do so on time, it in turn delayed others in the queue behind it too. With the new order, those organised for a timely takeoff as per procedures aren’t inconvenienced any further as defaulters are pushed back endlessly. Hence, Indian airlines now make a conscious effort to avoid a tardy performance on the runway, which would in turn garner a poor track record and reduced priority for sought-after slots during peak hours.

Along with this, there has been an evident escalation of flight frequencies, routes and passengers numbers in Indian aviation. International Air Transport Association (IATA) had published an interesting report in 2017 that forecasted major upcoming travel trends worldwide. According to it, around 7.8 billion passengers will fly in 2036 globally; a near doubling of the four billion air travellers expected to fly in 2018. From these numbers, the maximum demand is deemed to be out of the Asia-Pacific region. It will be the source of more than half the new passengers over the next two decades. In terms of market size, the UK will fall from the third to the fifth place. India will overtake the UK as the third largest aviation market in the world by 2025. By 2026,

The prediction that India is projected to overtake the UK as the third largest aviation market by 2025 has surely been sweet to the ears of our hospitality industry and tourism bodies.

the country (India) will have 337 million new passengers and a total of 478 million air travellers. This will be more than that of Japan (just under 225 million) and Germany (just over 200 million) combined.

The prediction that India is projected to overtake the UK as the third largest aviation market by 2025 has surely been sweet to the ears of our hospitality industry and tourism bodies. It has encouraged the government to further uplift the aviation sector, as it has visibly been doing so since a few years. The government realises the potential of this industry and India’s strong middle-class population of about 35 crore that enjoys an accelerating spending power. In order to make flying affordable for all, airfare in 2016 was reduced by 18 per cent than that in 2015. According to the Civil Aviation Policy of 2016, if each Indian from the middle-class bracket takes one annual flight, it will result in the sale of 35 crore tickets. Indian aviation is strongly relying on the ability of the middle-class Indian to take to the skies.

REGIONAL CONNECTIVITY

Limited regional connectivity is another reason why middle-class India didn’t take to the sky much, until recently. The country’s age-old train system has always been reliable; however thanks to the fall in airfare and the increasing convenience of air travel, there’s been a noticeable transition in the way the common man of India travels.

To further encourage this switch, a government initiative called the UDAN (Ude Desh ka Aam Naagrik) Scheme — literally translating to “flies the common man of India”— was announced by the government in October 2016 and put in action in April 2017. It has been launched to connect India’s under-served and unserved airports to larger metros, and also aims to make air travel affordable for the common Indian citizen. (Under-served airports do not have more than one flight a day operating out of them. Unserved airports have no flights operating to and from them.) Prime Minister Narendra Modi inaugurated three routes to kickstart this ambitious scheme — Shimla-Delhi, Kadapa-Hyderabad and Nanded-Hyderabad — back in April. Post this, India’s regional connectivity has only seen a drastic upward traction.

Under the UDAN Scheme, the government has chosen five airlines to operate on 128 routes — Alliance Air (to operate 15 routes), Air Deccan (to operate 34 routes), Air Odisha (to operate 50 routes), SpiceJet (to operate 11 routes) and Turbo Megha Airways (to operate 18 routes). Together, they will connect 27 served, 31 unserved and 12 under-served airports. In UDAN’s second bidding launched in August last year, the government has acquired 141 more proposals that cover a total of 502 routes, exemplifying the growing importance of regional connectivity to India’s civil aviation. Tier II destinations including Haridwar, Tezpur, Tirupati, Srinagar, Shillong and Imphal

are being included in the scheme.

DOMESTIC TO INTERNATIONAL

Prior to the launch of the UDAN Scheme, the civil aviation authorities announced two amendments that transformed the way India’s

aviation industry conducts business. The first being the amendment of the 5/20 rule — the long-standing norm of the Indian Aviation Ministry under which national carriers were required to complete five years of operational experience and a minimum fleet of 20 aircraft to fly overseas. In February 2016, Tata Sons (the Indian holdings company that maintains joint ventures with AirAsia and Singapore Airlines for AirAsia India andVistara respectively) had openly voiced its opposition to the 5/20 rule.“The 5/20 rule has thus far principally benefited only foreign airlines, who have captured 70 per cent of the international traffic from India, taking Indian jobs and revenue with them. The removal of the rule is estimated to boost international traffic to and from India to over 100 million passengers by 2021 and will stimulate the domestic market. Increased competition within the country will further contribute to lower (airfare) prices and greater accessibility of air travel to common people,” said a company official in a statement.

By March in the same year, a discussion headed by Home Minister Rajnath Singh had reportedly concluded with the decision to scrap the 5/20 rule. A formal change was announced by the Civil Aviation Policy in June 2016, thereby doing away with a part of the restriction. Going forward, carriers no longer need to have completed five years of service on domestic routes to fly international; but they still require to operate a fleet of at least 20 aircraft or reserve 20 per cent of their fleet for domestic routes, whichever is higher, before they can expand their horizons globally.

Out of the seven domestic players in India’s civil aviation industry, the joint ventures of Tata Sons — AirAsia India and Vistara — have benefited the most from the policy change. Both airlines began operations in 2014 and 2015 respectively. “Though a 0/0 or 0/10 would have been more than welcome, the amendments that have been made to the policy are encouraging. We will now focus on aggressively investing in India and increasing the fleet size to 20 aircraft,”says Amar Abrol, CEO of AirAsia India.

In fact, AirAsia India plans to start international flights in the second half of 2018, after deploying 20 aircraft in its fleet (it currently owns 14 airplanes). Abrol further confirmed this in an interview with LiveMint in November 2017: “We are on target to launch our international routes the minute we achieve 20 aircraft in India next year (2018). We foresee our Indian operations to be very profitable once we start flying regional routes and connecting them to our wide network.” Vistara is also rumoured to begin its international operations around the same time. The Tata Sons-Singapore Airlines joint venture currently owns 16 aircraft and has announced that it would receive its 20th aircraft by the end of the current financial year, that ends on March 30, 2018. It will then receive two more aircraft by mid-2018, that will primarily serve on its international operations.

EASING INVESTMENT

The second big amendment followed a week after the announcement of the Civil Aviation Policy in June 2016. In an effort to seek greater investment flows into the country, India opened up to 100 per cent foreign direct investment (FDI) by overseas entities (excluding airlines) in domestic airlines. Although, foreign airlines are only permitted to invest up to 49 per cent in an Indian airline, the rule has made it easier for international carriers to set up a domestic carrier in India. Airlines no longer have to look for an Indian partner, but can join hands with private investors abroad.

Qatar Airways was the first airline to announce its evident interest in operating a domestic carrier in India. At ITB Berlin 2016, a Qatar Airways’spokesperson quoted their chief executive officer Akbar Al Baker on the airline’s plans to start a wholly-owned carrier to serve domestic routes in India. The Gulf carrier said that it would collaborate with Qatar Investment Authority for this venture, making it the first of its kind in India’s aviation business. Al Baker further said that he was yet to put forward the proposal to the Indian government. The announcement didn’t come as a complete

surprise, as the Gulf airline has also been eyeing a stake in IndiGo Airlines since many years.

SECURITY MAKE-OVERS

Along with implementing amendments that alter the aviation business on a macro level, the security arm of Indian aviation — Central Industrial Security Force (CISF) — announced the gradual doing away of the dated practice of hand-baggage tagging during security scan, post check-in. This elimination was initially launched in December 2016 as a pilot project at six airports — Bengaluru, Chennai, Delhi, Hyderabad, Kolkata and Mumbai. To ensure easy functioning of this new protocol, a committee comprising of the CISF, the BCAS (Bureau of Civil Aviation Security) and airport officials was set up in 2016.

Recently, Goa, Pune, Nagpur, and Trichy airports have also joined the bandwagon that has done away with baggage tags after security check. With this development, a total of 23 airports across India have stopped the redundant and timeconsuming practice — making security check comparatively swift and uncomplicated. At the time of going to press, about 27 other Indian airports, falling under the Central Industrial Security Force — including Jodhpur, Port Blair, Aurangabad, Bhopal, Tirupati, Imphal and Jorhat — were being reviewed for this process.

FALL OF THE GIANT

While mentioning the landmark happenings of Indian aviation, it’s impossible to omit the disinvestment of India’s national carrier — an announcement that caused a stir in the industry. It was in June 2017 that the Government of India decided to disinvest the loss-making Air India. Since then, a group of ministers, headed by finance minister Arun Jaitley, has been working out details on how to take this forward.

There are two options that have been laid out — the first includes selling off the airline’s subsidiaries before the final sale of Air India; and the second option is to sell the airline on an “as-is-where-is” basis. (The latter is a legal term that means the buyer purchases the item on sale in whatever condition it is in and with whatever liabilities it may have attached to it.)

Currently, Air India has a debt of about `52,000 crore. Its assets are worth `30,000 crore and include engineering items, property, a few art pieces and subsidiary businesses. Further, an updated version of the country’s foreign direct investment document restricts Air India from being sold to a 100 per cent foreign company/airline. It can, however, be sold to a joint venture wherein one partner company is registered in India and has a minimum shareholding of 51 per cent.

This has opened doors for Vistara and AirAsia India to bid for the national carrier. If rumours are to be believed, Tata Group has been eyeing Air India since a while. However, IndiGo Airlines is the only airline to openly show interest in Air India’s international operations. In an internal discussion on IndiGo Airline’s future plans regarding longhaul international flying — Business Traveller India spoke to

From favourable government policies, eased investment openings and proactive players, the forecast seems exciting.

Rahul Bhatia, co-founder of IndiGo Airlines. He says, “Quite simply, we are interested in the airline operations of Air India. And more specifically, we are focused narrowly on Air India’s international operations and Air India Express. That is what we have communicated in our one-on-one discussions with the government officials.”

In September 2017, the government of India had invited applications from investment bankers, law firms and other entities to advise on the strategic stake sale of Air India. However, there seems to be an indefinite delay in the disinvestment of the troubled state-run carrier. It is unlikely to take place in the fiscal year 2017-18, a divergence from the initial plan of completing the process by early 2018.

A lot has transpired in our aviation business in the last couple of years. These milestones and happenings have made it quite an eventful time for the industry and especially the middle-class consumer. From favourable government policies, eased investment openings and proactive players, the forecast seems exciting. Whether the predicted numbers will actually play out is only for time to tell. Until then, let’s keep our seat-belts fastened.