The Hindu : Business : India moving towards open skies policy

Online edition of India's National Newspaper
Friday, Dec 31, 2004

Business

Business

India moving towards open skies policy

By Ramnath Subbu

MUMBAI, DEC. 30. The Union Government's announcement allowing private domestic airlines with over five years experience and fleet of 20 aircraft to fly to all international destinations barring the Persian Gulf is a welcome move and an extension of the earlier liberalisation measures announced for the domestic aviation sector.

On the one hand, this move will see a significant improvement in the utilisation of Bilaterals and on the other, there will be a significant improvement in the synergy of Air India and Indian Airlines which should lead to both players operating profitably.

bilaterals are based on reciprocity between two governments and are signed on the basis of Air Services Agreements (ASA). India has ASAs with 97 countries of which only 46 are being utilised which indicate that 51 are dormant and 44 being used by foreign countries while Air India and Indian Airlines use only 20 of the ASAs — a meagre 35 per cent utilisation of bilateral entitlements. "Allowing private operators will go a long way in correcting this situation,'' according to Kapil Kaul, Vice President — India, Centre for Asia Pacific Aviation (CAPA), who added, "If the two national carriers were to use the full entitlements, they would need a further 100 aircraft on a pro rata basis.''

Jet Airways and Air Sahara, the two airlines who fulfil the criteria to operate overseas, have between them, 64 aircraft (43 for Jet and 21 for Air Sahara) and enjoy a market share of 55 per cent plus. In fact, including both their fleet and the expanded fleet of Air India and Indian Airlines, 40 per cent of the bilateral entitlement would still go abegging, felt Mr. Kaul.

"Globally, the aviation industry is going through a regulatory revolution. Bilaterals are giving way to multilaterals. Countries in the Middle East, Singapore and even Sri Lanka follow an Open Sky policy and slowly most of international aviation is moving towards it. India needed these internal changes to relate effectively to the changing environment externally,'' said Mr. Kaul.

The focus for the other players in the sector like Air Deccan — the pioneer in domestic low cost air travel — and Kingfisher, which has still to commence operations will, for now, remain in the domestic market.

Setting up international operations for the players does not seem to be a problem. Jet is poised to commence its flights to the ASEAN region from April 2005 and could start flights to the U.K. and the U.S. by October 2005. Regarding the funds to finance the operations of overseas flights, there is talk of Jet's Initial Public Offering early next year preceded by a dilution of some of its equity. "This would have a significant impact on the valuation of the IPO and the company could demand a significant premium. Sahara is a cash-rich company anyway and raising funds would not be an issue,'' said Mr. Kaul.

The key aspect from the announcement would really be the synergy that could emerge between the two national carriers. "If the two were to collaborate with each other rather than compete, it would be very beneficial. Indian Airlines could focus on domestic and regional operations while Air India could focus on long haul flights. A synergistic view could save the companies around Rs. 350 crores annually and allow both to operate profitably. However, that really depends on how this issue is handled,'' said Mr. Kaul.

Printer friendly page
Send this article to Friends by E-Mail

Business

News Update

Stories in this Section