Talks of tweaks to 5/20 rule for airlines get mixed response from stakeholders
Civil aviation ministry will shortly come out with a draft policy for public feedback, suggesting more than 3 options
Mumbai: New airlines that took wing on hopes of disrupting the country’s aviation market seem to have been laid low by rules that prevent them from flying abroad until they complete five years in the Indian air space and acquire 20 aircraft.
AirAsia India and Vistara which took to skies in June 2014 and January 2015, respectively, had expected an early change in the so-called 5/20 rule. Now, AirAsia India is slowing expansion, citing lack of clarity in the 5/20 rule, while Vistara lobbies for a change in law.
Tata Sons Ltd holds substantial stakes in both airlines—with AirAsia Bhd in AirAsia India and with Singapore Airlines Ltd in Vistara.
On Thursday, Mahesh Sharma, minister of state for civil aviation, said there has been wide consultations with Prime Minister Narendra Modi on the 5/20 rule, adding a new methodology has been arrived to make certain changes to the rule, or even bring in a new rule.
A person close to the development said the civil aviation ministry is yet to finalise the policy on 5/20. The ministry will shortly come out with a draft policy for public feedback, suggesting more than three options.
“There could be multiple options. Besides abolishing or continuing, the ministry is mulling options such as reducing the number of aircraft and years of operations. The other option is to earn credits by flying to remote areas to qualify for flying short-haul to long-haul destinations,” he said.
A final decision will be taken after receiving feedback from the public, he added.
Kapil Kaul, chief executive officer at aviation consultancy Capa India, said he is expecting that India will abolish the 5/20 rule after public consultations on the draft civil aviation policy. Kaul pointed out that business plans and long-term strategy of AirAsia India and Vistara are already impacted by the continuation of 5/20 rule. Abolition, or a two-year-and-10-aircraft kind of rule may be more suitable for both.
“Aviation is a key engine for the socio-economic growth of the country and harnessing the untapped potential of the Indian aviation market will immensely benefit the economy, boost tourism, generate employment opportunities and ultimately benefit the customer, too,” said Phee Teik Yeoh, chief executive officer at Vistara.
Yeoh said there is an immediate need for a new and progressive civil aviation policy, which can fortify the Indian aviation industry’s global positioning.
“In the current context, the 5/20 rule has no standing. If the government wants to catapult Indian aviation onto the world platform, the 5/20 rule must go away in totality. But if it has to get replaced with another guideline then that has to be pro-growth, pro-business and pro-people,” Yeoh said.
Any policy has to be simple and sustainable to be effective and impactful, he said.
“An equal misery approach will only lead to forcing every player to the weakest common denominator which will not be beneficial to India,” Yeoh said.
However, he said Vistara is committed to expanding its operations in India and will have nine aircraft by end of 2015 and 20 aircraft by 2018.
“The addition of three aircraft by December 2015 will enable us to increase our domestic footprint by 50% in terms of capacity and network expansion,” he added.
Mittu Chandilya, chief executive officer and managing director at AirAsia India, did not reply to an email.
In an interview to The Economic Times on Thursday, Chandilya said his airline was told that there will be a relaxation of the 5/20 rule. The airline’s intention is to go international.
“I am just holding back my fleet induction until I get clarity on this. Allow me to strategically plan. How can I open up new destinations when I don’t know what the policy is?” Chandilya was cited as saying.
Capa’s Kaul hoped that public consultations are likely to favour more competition and dismantling negative regulations such as the 5/20 rule.
Last week, the Federation of Indian Airlines (FIA), a lobby group, wrote to the Prime Minister that doing away with the 5/20 rule will vitiate the level playing field and benefit foreign airline-controlled new entrants.
FIA said incumbent airlines are committed to high-cost domestic networks due to the 5/20 rule and route dispersal guidelines (RDG), which mandate them to fly to remote and unprofitable local routes.
Capa’s Kaul termed FIA’s support of 5/20 rule as unfortunate, as it promotes restrictive and negative regulations.
“Airlines like IndiGo have been victims of 5/20 rule as they had to wait for five years to start international operations. (Now grounded) Kingfisher Airlines had to acquire Air Deccan to start international operations and this proved very costly for Kingfisher. Industry, new or old airlines, must support to end negative regulations and promote positive industry order,” Kaul added.
“It doesn’t happen anywhere and such policies cannot be defended and supported,” Kaul added.
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Business NewsPoliticsPolicyTalks of tweaks to 5/20 rule for airlines get mixed response from stakeholders
First Published:8 Sep 2015, 10:04 AM IST
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