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Right of first refusal for national carrier?

Right of first refusal for national carrier?
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First Published: Wed, Jul 18 2007. 11 33 AM IST
Updated: Wed, Jul 25 2007. 04 58 PM IST
Private airlines in India, hopeful of being allowed to fly lucrative West Asia routes once the monopoly of state-owned carriers in the sector expires at the end of the year, may face a harsh rider.
The ministry of civil aviation has proposed that privately-run carriers will be offered capacity on such routes only after Air India and Indian Airlines are offered seats on the sector first and decline it.
Air India and Indian Airlines —the two are being merged into National Aviation Company of India Ltd—already enjoy a ‘right of first refusal’ on international routes to countries with which India has a so-called bilateral agreement.
The ministry has decided that the same arrangement will be extended to the West Asia sector too from 1 January 2008.
An earlier proposal, part of an early version of the national civil aviation policy, to extend Air India and Indian Airlines’ exclusive rights on the West Asia routes to 2010 was not favoured by other ministries.
“If there is a route where capacity is available under the existing bilateral then Air India will be asked to match that capacity. If it cannot fill that then the private airlines will be considered,” a senior civil aviation ministry official said, explaining how capacity would be parcelled out on the West Asia routes.
The official, who requested anonymity, declined to speak on other details.
Bilateral air services agreements detail the number of flights two countries can operate between their cities.
India has over 100 such air service agreements but there is significant under-utilization from the Indian side on several sectors. The bilateral agreement between Kuwait and India, for instance, allows for 12,000 weekly seats, including 4,000 seats added last month, for their respective carriers but it is only Kuwait Airlines that absorbs all the seat capacity it is entitled to, while Air India uses just one-third its allotted capacity.
Such first-refusal rights do not operate on ‘open-sky’ routes that India has with countries such as the US and the UK.
Under open-sky rules, airlines can fly unlimited flights to and from any country subject to permissions on flight timings and airport slots from aviation regulators on each side.
West Asia, which has a significant migrant population, accounts for 25% of Air India’s revenues and 35% of Indian Airlines’.
The growth in the sector is one of the key reasons for rise in passenger traffic at south India’s airports.
The performance of the sector explains why private airlines Kingfisher Airlines Ltd, Jet Airways (India) Ltd, Deccan Aviation-run Air Deccan and Gurgaon-based SpiceJet Ltd are lobbying hard with the government to open up international routes.
Among private carriers, only Jet Airways—and its unit JetLite (formerly Air Sahara)—has permission to fly international currently.
That’s because aviation rules do not allow private airlines without a continuous five-year stint in domestic operations to fly foreign routes.
But Indian carriers, including Kingfisher Airlines, SpiceJet, Inter Globe Technologies Pvt. Ltd-run IndiGo, GoAir (India) Pvt. Ltd and Paramount Airways Pvt. Ltd have ambitions of flying overseas once they are permitted by the government to do so.
When that happens, airline executives worry, the ‘first right of refusal’ enjoyed by Air India will crimp their ambitions.
Jet Airways executive director Saroj Datta said the right of first refusal would impact the long-term plans of private airlines if the government did not increase capacity under bilateral agreements.
“In any country, the national carrier is given a first choice. We can’t ask Air India to suddenly curtail capacity,” he said.
“The government,” he hoped, “will continue to upgrade bilaterals based on the requirements of the (private) airlines.”
Air India said it expects to be able to utilise the capacity it has on West Asia routes by redeploying some of its South East Asian flights as part of the ongoing merger process with Indian Airlines. Many routes here are served by both the carriers leading to overlapping of services.
“The sum and substance is increased entitlement to the West Asia especially after the redeployment activity which we have already started,” said S. Venkat, executive director ( finance) of Air India.
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First Published: Wed, Jul 18 2007. 11 33 AM IST