In theory, India has liberalized its civil aviation sector. Today, the largest airlines are in the private sector and the state-owned companies have to be continuously bailed out. The leap in number of persons who travel by air touched 52 million in 2010 attests to this.
In practice, the government practises socialism by stealth in the air. The route dispersal guidelines of the ministry of civil aviation are a prime example of this. These guidelines order airlines to fly to destinations that are often not viable. These, as a Mint story on Wednesday reported, are being expanded instead of being reduced.
Any operator would like to fly on those routes that maximize his revenue, which, in turn, are a function of demand and the ability of consumers to pay. These are mostly routes connecting large metros of India. The guidelines order companies to fly at least 10% of the flights they operate on metro routes to areas such as Jammu and Kashmir, the north-eastern states, Andaman and Nicobar islands and Lakshadweep that are considered by many as unviable.
One way to expand the scope of this socialism in the air is to redefine what a metro route is. This is what the bureaucrats in the ministry plan to do. As reported in the story, Kochi-Bangalore and Bangalore-Hyderabad routes may be soon defined as metro routes. The effect of this flick of a pen would be to force airlines to operate more flights in unviable regions.
Now there may be social and strategic reasons to ensure air connectivity for these remote and expensive destinations. The means to those ends, however, have to be different. The government could, for example, subsidize private airlines that are forced to fly to these places. Or it could order state-owned airlines to operate there. It refuses to take such steps and wants, in effect, flyers on metro routes to subsidize passengers on unviable routes. This is plain redistribution by flying planes.
This has another adverse effect as well. It bolsters the demands made by private airlines for state support, demands that otherwise have no rationale in a market economy. The danger in not formalizing a subsidy regime for operating unviable flights among many other ills that plague the sector, as events of the past years have shown, is that it promotes cronyism: Tacit and opaque bargains between airlines and politicians become “routine” and acceptable.
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