India switches to flight mode - Enough to take off? #CivilAviationPolicy

Presenting an article that I wrote way back in Jun 2016 after the new civil aviation policy. Looking at the scenario now, one can confidently say that flying is no more a distant dream, although how much of it can be credited to the CAP is debatable.

Flying is still a distant dream to many. Although there has been a rise in income levels, the rise is limited to some pockets of urban India. India has unveiled its New Aviation policy that is intended to boost the aviation sector both intra-nationally and internationally. The two big announcements are 
  1. Cap of Rs 2,500 for one hour flights
  2. Scrapping of 5/20 norm

Cap of Rs 2,500 for one hour flights

Flying is still a distant dream to most Indians. Although there has been a rise in income levels, the rise is limited to some pockets of urban India. Last year, about 80 million Indians flied (6.7% of total population is a minuscule number), which is a very small percentage considering India's middle class population of 350 million. According to Government, India is one of the least penetrated air markets in the world with 0.04 trips per capita per annum as compared to 0.3 in China and more than 2 in the USA. Capping of fares and adding new airports are aimed to provide people with enough opportunities to fly. Over the next 3 years, 50-80 airports are expected to be revived/added in smaller towns, implying that India will have twice the number of airports we have today (75). New airports will help in avoiding a detour or connecting through another mode to an airport in a different city, and lower prices will attract more passengers. As more passengers come in, airlines can fly larger aircraft economically, instead of costlier ATRs or other smaller aircraft. India's aviation sector registered a 22% growth this year and the Government expects to see up to 60% growth in the next 5 years, a massive number, taking the number of fliers to 300 million in the longer run, making India the 3rd largest market (from 9th now). The goal is very ambitious but considering India's price sensitive consumers, the fare cap may just play the trick.

Thus, the regional air connectivity scheme aims to ensure affordable, convenient and cheap flying. Airlines are set to get tax incentives for operating on un-served routes. Passengers, however, will be levied a fee towards regional connectivity fund. The Government also intends to have a cap on fares during national calamities, a definite welcome move.

Scrapping of 5/20 norm

Until now, domestic airlines could fly overseas only after 5 years of operating locally and having a minimum fleet size of 20. From now, any domestic airline can fly overseas if they deploy 20 planes or 20% of their total capacity for domestic operations. This rule benefits new carriers like Air Asia, Air Vistara and puts some competition in to the kitties of older carriers.

There hasn't yet been a decision on auctioning of additional bilateral rights or on FDI, which continues at 49%. Further, the open skies rule for beyond 5,000 km, but not within 5,000 km continues to be there, as the Government feels its premature to take off this rule, as airlines still need time to become capable of facing the competition. The Civil Aviation Ministry will come out with initiatives to develop new airports, separate regulations for helicopters and measures to boost skill development in the aviation sector. Most developments are supposed to be done using AAI's funds, and may not be passed on the passengers.

Source: IBEF

Some pain points of aviation in India

  1. Convincing the Tier-II travelers to pick time over price Despite a drop in fuel prices, neither the airlines nor the consumers have really seen any benefit as excise on ATF has been increased. The cost of operations have also remained at the same level. Further, the compulsion to fly to smaller towns now may add more pressure on the airlines. We may not be really yet in a position to quote economies of scale considering we are unsure about how much these changes will attract people to fly.
  2. Location of airports in the outskirts make it time consuming and expensive If we look the current rates, a flight from Bengaluru to Chennai (1 hour), if booked about 15 days in advance, can cost as low as Rs 1200 (economies of scale works). Similarly, a Bengaluru Delhi (2.5 hours) flight can be booked for Rs 3000. So, literally speaking, there is no big advantage from capping of prices. The big move will come only and only if the Government can create a market like larger cities in the smaller cities. It shouldn't be a market to fly for entertainment or experience, but a market that flies just like it travels in a bus or a train. This would happen if trade and business grow in the smaller towns.
  3. A lot of time is lost in the process of boarding the flight for short trips too, especially for smaller towns considering the odd hour scheduling Connectivity to airport is another major pain point not only in India, but world over. Even in larger cities, it is a real pain to travel to the airport. In many instances, the travel time from/to airport is much higher than the duration of the flight. Further, the cost of travelling from/to airport is also significant. At times, I'm surprised to pay Rs 1200 for the flight but Rs 900 for the cab in Bangalore and Rs 300 in Chennai, making it effectively twice the price of the ticket. In case of bus/trains, the cost of connecting to the point of arrival/departure is nearly negligible. Plus, there is enough public transport connectivity to these places.
  4. A diverse country with varying weather across places is tough to operate The time spent in airports for check in and security clearance (added to the travel to travel to/from airport) makes it an unattractive deal. If someone has to spend 3 hours (best case scenario, goes up to 5 hours in cities like Bengaluru) in total for a 1 hour flight, it doesn't make much sense. Further, when we talk of the smaller towns, it would make much more sense to travel overnight in a 3AC at 30% of the proposed capped fare (or just 15% of the overall travel cost), get a good night's sleep and log on a fresh morning, considering that the planes that fly to smaller towns, generally fly at odd times, like middle of the day, rendering the whole day inactive.
  5. It all depends on how well the intended crowd (Tier II in this case) responds India is a large country and a vast economy where people have varied mindsets and no common rule will satisfy all. There are always going to be rebels. Further, the country's climate is inconsistent across the regions and it would be tough to fly to some regions. Flight cancellations too are inevitable in such a scenario and it could drive away serious fliers. Solutions to these intricacies need to be worked on a case to case basis.

Lastly, if we really ought to take off to flight mode, we may want to completely change the face of flying in India. Flying is mostly seen as a privilege limited to the elite (or now, the upper middle class). While fares to large cities are justified even when compared to rail prices, the cost of traveling to even a close by place is very high. Connecting flights may play a key role in bridging this gap. Plus, we may want to completely get off some costs and just keep the bare minimal requirements up there. A lot of questions remain unanswered and only the time will tell how things turn up. A lot would depend on how urban and semi urban trade and business grows in the coming years.